Are accountants are worth it? Change my mind.

31 Replies

While I greatly respect accountants, I want someone to explain why they're worth the fee for 90% of buy and hold investors. This year my refund was $3,800. My total tax prep fee was approx $4,200 (not unusual if you ask around at these real estate accounting specialists). A great accountant would probably catch every mistake and squeeze every tax benefit, but what's the point if the fee exceeds any of the tax benefits. Moreover, many real estate accountants increase their fee based on number of properties. 

Alternatively, I could use TurboTax, maybe I miss some claims and I only get a $2,000 refund, but the software is only $500. I come out ahead $1,500 instead using an accountant where I'm negative $300. Even if I pay for TurboTax audit protection, I'd still be ahead.

What am I missing?

@Philip Hy

How many hour would it take you to prepare your return using Turbotax? and would you feel comfortable knowing that your return was prepared accurately?

Turbotax is a great software if you have a simple tax return(W-2 and some interest/dividends).

$4,200 for your tax returns would indicate that you have an above simple return.
Do you have rentals across many states? If yes, how familiar are you with the tax laws in those states?

The fee you pay to your professional is not related to the refund that you get with your return.
It is also for the convenience of not having to do your own return, the assurance it was done correctly and possibly a person you can reach out to and ask questions regarding tax law changes.

@Philip Hy As @Basit Siddiqi said, you have to quantify your time. If you're paying $4,200 for tax prep, you do not have a simple tax return. If you're self-preparing it and it only takes you an hour to do so, you're doing something wrong.

Also, the amount of your refund (if any) is not always indicative of the quality of service provided by the tax preparer. At our firm, it's more important to us that we avoid an audit.

For example, we could get you a $1 million refund if you wanted it - click a few buttons and there you go. But if the IRS comes knocking (and they will) and you (burden of proof ultimately falls on the taxpayer, not the tax preparer) cannot substantiate it, the IRS will take it all back plus interest and penalties. Does that sound appealing?

Keep in mind, if you are paying for tax prep only, it is difficult for us tax pros to save you taxes after the year is already over, which is when tax prep occurs.

Tax prep is reactive by nature. Sure, having a RE-savvy tax pro preparing your taxes is better than the alternative but, still, at that point, we'd only be able to do so much.

Where the value lies is proactive tax planning and strategizing. This is where the value of your CPA is realized and where the ability to put you in a more tax-efficient position becomes possible.

Don't quantify the value of your CPA by tax prep alone, specifically by your refund. You have to first understand your unique tax situation and how it affects your tax liability currently, and then compare that to how your CPA will help you prepare correct tax returns and offer solutions to help lower your tax liability.

The ONLY reason I have one do my Tax Prep is to maintain my sanity & avoid my wife's "I told you so". I used Turbo Tax for years until the result of a couple of simple mistakes caused a 2010 & 2011 IRS audit, (my returns were 286 pages by then).

So your complaint about the seemingly small expense may well be moot assuming his expertise kept your return out of the prying eyes of the IRS.

@Philip Hy

If you’re paying $4,200 for tax prep and return I’d say you need to give us more Info. That’s about 8 times the price I pay. And, the dollar amount of your return tells me nothing on if you’re being overcharged or not.

@Philip Hy

Hi Philip,

My feeling is if you're being charged $4,200 (appropriately), then you've certainly grown big enough and should have one.

Having a relationship with a good accountant is more than just about filing taxes. There are many other questions and sitiations that could come up throughout the year. If they don't have insight into your goals, previous filings, etc., they may not be able to give you the best advice.

My two cents

@Philip Hy   I'm surprised you're being charged that much.  I live in CA and my properties are in VT, and I'm charged $400 base for the taxes and $150 per property.  4 properties currently so $1,000 fee last year.  I've asked around and gotten similar quotes.  

@Philip Hy you’re probably just overpaying. How many properties/units do you own? There was an investor on BP with around 120 units and he paid about 6k.

I’m guessing you’re being overcharged

@Philip Hy

Do yourself a favor and don't self prepare. If you're really unhappy with the fee, ask for an explanation, or start to shop around. But don't do it yourself. The fact of the matter is, he or she has a lot more experience than you in dealing with this stuff, and is better equipped to handle it all. I can tell you that my firm has saved a few clients (who were previously using turbo tax or HR block) over 100k in total in missed depreciation over the last year alone. And that was spread over only a handful of properties. If you want to argue about a few hundred bucks a year, consider that as your alternative.

You shouldn't evaluate your annual benefit as what your refund is vs your cost of preparation. A tax refund isn't a right given to you by the IRS. If you had more withheld or paid in every year, and you ended up with a perceived net benefit from your CPA, would you still be wondering about this? Note that your tax paid to the IRS would be the same regardless.

Depending on your situation the fee could very well be reasonable. Can't say without a look at your returns. Keep in mind, every market is different. A CPA in Plano may not charge the same as Boston, LA, or anywhere else. If you want someone local, ask around. Otherwise, most of what is needed can be done via email and telephone, so reach out of market if needed to get the price you want.

Best of luck to you!

Paying my accountant is the one thing I know will always yield me the highest ROI. Money well spent. I never ask about the fees or increase in it I see the value it brings to me.

@Frank Wong

Couldn’t agree more with Frank’s comment. The fact you are correlating your refund with your prep expense demonstrates that u do not understand how your taxes work. In an ideal state your race refund should be zero.

Everyone, thanks for the great feedback, whether you agreed or not. For those curious, I have 9 SFH, 5 K1's from MF syndications. Everyone I've talked to has said that they paid $1-2k, and that's why I'm wary that I'm overpaying.

@Kevin Manz when you invest in certain types of investments, they provide a one-page tax statement called a K-1. As I understand it, it breaks down your share of taxable income, depreciation, etc. This is relevant when I own shares of a MF investment, and need to know my tax impact.

Originally posted by @Philip Hy :

Everyone, thanks for the great feedback, whether you agreed or not. For those curious, I have 9 SFH, 5 K1's from MF syndications. Everyone I've talked to has said that they paid $1-2k, and that's why I'm wary that I'm overpaying.

Here's kind of another issue with your specific circumstance. It's a little high- but depending on the K-1s it may be appropriate. 

5  K-1s could also each have multiple on a totally hands off investment where your tax pro can't really plan/ make choices/ ect...they're just reporting your income could be costing you a ton in prep time. I had a client this year who "made a small investment and got a K-1" and it resulted in 15 additional state return filings. 

So long story short- it may be high or may not depending. If you're in passive deals there's a little less planning wise to be done- since it's being done at that corporate/holding company level. 

Also there's the new QBI deduction in 2018 which l tax pros aren't all familiar with yet unfortunately(I had to send back 2 K-1s to the CPA who did the corporate returns because the QBI was left off or wrong) 

Reach out to a few pros on here. Get a review of your returns. See what feedback you get. 

Originally posted by @Randy Bloch :

@Philip Hy

I would say you are overpaying. I have 7 SFH and pay significantly less...the answer is not using turbo tax, it is to find a different CPA.

It's not really apples to apples though. 

You may have 7 SFH all in one state.

He may have 9 rentals in 9 different states. Plus 5 K-1s that each create another several state returns.  

Or maybe OP is a super terrible bookkeeper and gives his CPA piles of receipts and junk and it takes them an extra 3 hours to basically sort things out before doing the actual return- no way to know from the info given if it's a good price. 

@Natalie Kolodij

Good point. Your advice was solid, he needs to understand what is driving the price and having someone else review would be a good idea.

I am just looking at investing in syndication and this was one of the questions I had asked about whether I invest the min in a lot deals would be better than investing more in fewer deals that I like...wasn't sure how much the taxes would for K1 and out of state returns. My SFH are all in my home state right now and I am a finance person by trade so like to think that I make it pretty easy on my CPA :)

I am finance person by education and feel like I understand taxes pretty well, but I would not recommend any REI to do their own taxes....a good CPA is a good investment.

I used to do my own taxes... until I got audited and ended up paying A LOT more than I would have with an accountant.  Like @Philip Hy my refund was less than what I paid my accountant but I know I am less likely to get hit with a large tax bill down the road.  I also have multiple businesses and properties in different states.  

Save yourself some money by making it easy for your CPA instead of trying to do it yourself.  An accounting software that is reconciled regularly definitely helps.

@Philip Hy just on the surface that seems very expensive, but several factors play into tax preparation cost. I hand my CPA detailed reports with all expenses categorized and all receipts in dated order. He reviews, but most the work is done. My CPA told me some people just hand him a box of receipts, so it can take him much longer to work through it. 

My advice is get a local referral from someone who is paying less and have the CPA review your taxes from last year to give you a rough cost estimate if they had prepared it. 

I would not prepare my own taxes. It is not about the return, but rather making sure your taxes are accurately prepared to avoid IRS audits. Of course you want to take advantage of all tax benefits and deploy good tax strategies, but it is more important to do it right than to just get a bunch of money back. I review what my CPA prepares, so there are two sets of eyes going over things. If you work with a CPA, they will support you should you be audited. If you go it alone and make a mistake, it is all on you. Ignorance of proper tax preparation is not a defense in the eyes of the IRS. People don't take the IRS as serious as they should.