How do you know if you are paying too much for a CPA?
Member since 2019 · 18 posts · 1 vote
Is there an average price to pay for multi-state tax returns (3 commercial and 3 residential rental properties) in California? I believe I am being overcharged but it seems like a huge risk to search for and switch CPAs if that is the case. How would I reliably know that another CPA will do a good job for less money? Any advice on potentially switching CPAs or what to do if you think you are being overcharged is very much appreciated!
Another CPA opinion here - it is impossible to say what something should cost until seeing it. I have clients like @Bill B. who are likely very organized, preparing 10-20 rentals is simply a data entry game and dealing with any changes. I also have clients who don't do a very good job on accounting for anything and they are a complete disaster that cost more. At the same time, with certain clients, the more time we spend on them, the more it costs but they save more money.... I have a few people who are executives who were getting their returns prepared for free at EY who now pay to work with us because of the tax savings on their RE transactions. Simple things like cost segs were missed, they were paying net investment income tax, etc. Was easy to save thousands. @Yonah Weiss helped with one last year on a client of mine down south.
You will also find different rates based on where you are paying for services. In California you are going to pay a lot more per hour for tax services than if you decided to find a firm in the south or the Midwest. Cost of living changes things up quite a bit, a CA CPA may charge $300-$400 per hour while you may pay $200-$300 in MN. Most firms leverage staff at lower rates for prep however figure it may cost 25% more in a certain area. It will also cost more if you have many state returns to file but that shouldn't be significant.
If you are looking to save money and stay with your CPA you may want to find someone else to complete the bookkeeping as I am guessing in CA the rate at the CPA firm is probably $125 or more per hour for bookkeeping services. Hiring a bookkeeper or a bookkeeping service may save money unless the CPA does it all in their down time. Most CPAs will give you a rough quote if you send a copy of your returns. Doesn't hurt to get a couple opinions.most CPAs bill on flat fee so you can call around and get other quotes during their off season if you want. Find the right CPA who you trust and jive well with.
Your return sounds fairly complicated. You didn’t say what you were paying and I don’t know the details but a case could probably be made for anything between $1,000-3,000, maybe more if there are a lot of states involved. And If you have business returns like LLCs then even more. It also could be more if the CPA is doing some almost bookkeeping work like putting together your schedule E analyzing your rental expense and categorizing them versus you already having them summarized; deciphering what new improvements to capitalize versus expense and whatnot all takes time.
Let me know if you want the names of some CPAs in San Diego. You may find that a CPA in another state will work for cheaper because cost of living is cheaper, but be sure they are familiar with the complex CA laws if you are going out of state.
*this post does not create an attorney client or cpa client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
Thank you, that's very helpful!! We are paying around $2,500 per tax return (the 3 residential are here in CA and the 3 commercial are in 3 different states) and our CPA does do the bookkeeping. I knew our situation was complicated but I wasn't sure if that was a fair price. We're looking for places to cut back on the expenses or lower our taxes but, again, difficult to know if we're getting the best services.
12 rentals in Nevada and 1 in MN (all SFH) and I thought I was overpaying my CPA at $1500 total. No state tax in Nevada but includes MN tax form (no tax owed due to depreciation.) Been with him for 10-15 years
I do the bookkeeping and fill out one sheet per property he supplies at tax time that lists each kind and amount of expenses as well as income
Hmm so that's $1500 a year? I don't know how we ended up paying so much for ours or what to do about it. I am nervous about potentially switching CPAs. Is it difficult to do the bookkeeping yourself?
Book keeping isn't too complicated so long as you stay on top of it. It helps to have a separate bank account for each property. From there keep track of any repairs, expenses, etc. If you don't do any property management with your properties your PM should be able to provide you with all that. Now if you let stuff pile up for 6 months than yeah it's a pain in the butt.
Thanks for your reply! That's what I figured. We do have a property manager that takes care of all of that. My main concern is how much we are paying to file our taxes. I'm trying to figure out how to pay less and don't exactly know where to start. We can't talk to our CPA without being slapped with a huge bill.
@Juliette Lerner The good news is you have plenty of time before tax time to find another CPA if you decide to go that route. Start interviewing potentials now. Some will give you a little break on price if you help with the book keeping. Some CPA can be a pain to deal with. My dad has a great CPA, but isn't taking on new clients. Long story short my sister went to his business for bookkeeping, taxes, etc for her business. Some lady in the business said i'm we can't help you. Word got back to the boss about how she was treated and he did hers for free and heavily discounted the following year. And that lady was fired... Crazy to think someone would turn away a potential client because they just don't want to deal with it.
That is strange. It'll be tough but I'm sure I'll figure out what to do. Any advice on who to interview/where the best place to find potential candidates is? I have a few referrals from friends but is it safe to interview people without referrals too? Like just by looking people up online?
@Juliette Lerner There is no harm at all interviewing people you don't have referrals to. At most you will only be out a little of your time, but not your wallet. You definitely want to mention you have rental properties and find out if they have rentals themselves or if they even do that sort of thing. Some are one stop shops for just about everything and others specialize in a few things. Each office will be totally different. My referrals have come from friends or other investors at local meetups.
That’s basically just tax prep. He answers my basic questions for free but I pry ask 1-2 per year max.
@Brent Paul Thanks, that's very helpful!! I guess you just have to gauge by the way they answer your questions if they will do a good job and really be on your side.
most CPAs bill on flat fee so you can call around and get other quotes during their off season if you want. Find the right CPA who you trust and jive well with.
Your return sounds fairly complicated. You didn’t say what you were paying and I don’t know the details but a case could probably be made for anything between $1,000-3,000, maybe more if there are a lot of states involved. And If you have business returns like LLCs then even more. It also could be more if the CPA is doing some almost bookkeeping work like putting together your schedule E analyzing your rental expense and categorizing them versus you already having them summarized; deciphering what new improvements to capitalize versus expense and whatnot all takes time.
Let me know if you want the names of some CPAs in San Diego. You may find that a CPA in another state will work for cheaper because cost of living is cheaper, but be sure they are familiar with the complex CA laws if you are going out of state.
*this post does not create an attorney client or cpa client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
No, most don't bill on a flat fee. Possibly based upon the number of rentals, states etc; however, definitely not flat fee. Do a simple search for Average tax preparation fees. Advice costs most afterwords. Most of us here work with clients worldwide.
12 rentals in Nevada and 1 in MN (all SFH) and I thought I was overpaying my CPA at $1500 total. No state tax in Nevada but includes MN tax form (no tax owed due to depreciation.) Been with him for 10-15 years
I do the bookkeeping and fill out one sheet per property he supplies at tax time that lists each kind and amount of expenses as well as income
That is extremely undercharged. Based upon national avenuerage assuming nothing else you'd be looking at 2,200 for someone reputable, insured. This link is a bit old but should give you an idea:
https://connect.nsacct.org/blogs/nsa-blogger/2017/01/27/nsa-survey-reveals-fee-and-expense-data-for-tax-accounting-firms-in-2016-and-2017-projections
@Bill B. Ahh okay that's good to know. I feel as though your CPA should answer your questions for free especially if that's only 1-2 times per year!
A question here or there is one thing. We don't charge for those; however, you have to realize our commodity is our time just like an attorney earns based upon their time available. My rate for tax planning and representation starts at $350 an hour. Simply put, I specialize in very specific situations. You're going to get the advice of someone who regularly researches and studies. If you're paying 1200 for a tax return that has 12 rentals, it is not reasonable to expect additional time for questions outside of the preparation engagement.
I personally love amending and representing tax returns that were self prepared or prepared by someone who doesn't actually study the law.
@Steven Hamilton II Thank you for your reply and that helpful link! Is that $2,200 total per year for the returns on the 6 properties (an estimate of course)? Or $2,000 per tax return? It's difficult to find good information for average real estate tax return costs. I am trying to learn as much about the process as possible to make sure I understand what I am paying for.
If you’re paying 2,500 for a state tax return, that’s too much (unless it’s very complicated). The federal return is usually the biggest and most time consuming and then each state will require variations and tweaks from there. If you’re paying 2,500 for CA and then 2,500 x3 for each out of state return, that sounds extremely high (plus another 2,500 for fed?). Again, none of us here can see your return or the complexity involved, and it sounds like your accountant does more than just tax prep as there’s some bookkeeping involved and questions too, which would justify a higher fee, but still sounds high. My ~$3,000 estimate earlier was for federal, California, and a few simple states. Even if you add more for bookkeeping and questions, I would think $5k would be more than generous, in total. Of course, these forums are great for idea generating, but they don’t take the place of personalized advice. Call up some CPAs and get some quotes based on your personal facts. You have to do what is right for you, don’t worry about switching. If you really feel it would be difficult, maybe talk to your current CPA about a possible reduction before leaving.
*this post does not create an attorney client or cpa client relationship. Readers are advised to seek professional advice. The information contained in this post is not to be relied upon.
@Steven Hamilton II Thank you for your reply and that helpful link! Is that $2,200 total per year for the returns on the 6 properties (an estimate of course)? Or $2,000 per tax return? It's difficult to find good information for average real estate tax return costs. I am trying to learn as much about the process as possible to make sure I understand what I am paying for.
For federal and first state typically given the few items mentioned. Step one is to understand how many returns are needed and the scope of said returns. Aiming they are all disregarded entities, my number would be an idea for the listed situation. Just as a rough situation. I posted a link to a free survey from 2016.
I have an old post of questions to ask an accountant be when interviewing then. Some charge for consultations others don't.
*typing from my mobile phone*
@Katie L. Thank you for your reply, that is so helpful! I am going to set up a meeting with our CPA this week. Even if he charges, I have to get more on the same page with him about our fees. I agree that these forums do not replace personalized advice but I have definitely gotten a better idea of where I stand. Thanks again, I very much appreciate your input and advice!
@Steven Hamilton II Thank you, that's great to know! All of this information, while it doesn't replace personalized advice, has been so helpful in my understanding of the situation. I have prepared a list of questions I want to ask our CPA, whether he charges or not. Thanks again!
Another CPA opinion here - it is impossible to say what something should cost until seeing it. I have clients like @Bill B. who are likely very organized, preparing 10-20 rentals is simply a data entry game and dealing with any changes. I also have clients who don't do a very good job on accounting for anything and they are a complete disaster that cost more. At the same time, with certain clients, the more time we spend on them, the more it costs but they save more money.... I have a few people who are executives who were getting their returns prepared for free at EY who now pay to work with us because of the tax savings on their RE transactions. Simple things like cost segs were missed, they were paying net investment income tax, etc. Was easy to save thousands. @Yonah Weiss helped with one last year on a client of mine down south.
You will also find different rates based on where you are paying for services. In California you are going to pay a lot more per hour for tax services than if you decided to find a firm in the south or the Midwest. Cost of living changes things up quite a bit, a CA CPA may charge $300-$400 per hour while you may pay $200-$300 in MN. Most firms leverage staff at lower rates for prep however figure it may cost 25% more in a certain area. It will also cost more if you have many state returns to file but that shouldn't be significant.
If you are looking to save money and stay with your CPA you may want to find someone else to complete the bookkeeping as I am guessing in CA the rate at the CPA firm is probably $125 or more per hour for bookkeeping services. Hiring a bookkeeper or a bookkeeping service may save money unless the CPA does it all in their down time. Most CPAs will give you a rough quote if you send a copy of your returns. Doesn't hurt to get a couple opinions.@John Woodrich I completely agree with the organization aspect. I still think that around $20,000 per year for a CPA calls for some re-strategizing. I am definitely in the process of getting multiple opinions and figuring out what our options are. I'm not sure if the cost is coming from the hours spent on accounting or the complexity of the returns (probably both) but I something needs to be done. That's a helpful tip about hiring an accountant. Thanks for the reply!
@Juliette Lerner I am guessing some comes from the CA surcharge and if it includes accounting for all entities it may not be a bad deal. We have some clients where we charge over $30k for accounting services however that is a lot cheaper than them hiring an employee for $50k+ and paying them benefits. I don't think your needs are anywhere near that but that is an example in how high accounting fees can be justified.
Be careful as you will always find someone who will do it for cheaper, cheaper isn't always better.
Another CPA opinion here - it is impossible to say what something should cost until seeing it. I have clients like @Bill B. who are likely very organized, preparing 10-20 rentals is simply a data entry game and dealing with any changes. I also have clients who don't do a very good job on accounting for anything and they are a complete disaster that cost more. At the same time, with certain clients, the more time we spend on them, the more it costs but they save more money.... I have a few people who are executives who were getting their returns prepared for free at EY who now pay to work with us because of the tax savings on their RE transactions. Simple things like cost segs were missed, they were paying net investment income tax, etc. Was easy to save thousands. @Yonah Weiss helped with one last year on a client of mine down south.
You will also find different rates based on where you are paying for services. In California you are going to pay a lot more per hour for tax services than if you decided to find a firm in the south or the Midwest. Cost of living changes things up quite a bit, a CA CPA may charge $300-$400 per hour while you may pay $200-$300 in MN. Most firms leverage staff at lower rates for prep however figure it may cost 25% more in a certain area. It will also cost more if you have many state returns to file but that shouldn't be significant.
If you are looking to save money and stay with your CPA you may want to find someone else to complete the bookkeeping as I am guessing in CA the rate at the CPA firm is probably $125 or more per hour for bookkeeping services. Hiring a bookkeeper or a bookkeeping service may save money unless the CPA does it all in their down time. Most CPAs will give you a rough quote if you send a copy of your returns. Doesn't hurt to get a couple opinions.I agree to some of that. There is far more due diligence that you need to do with self prepared financials.