Should I do my own taxes or hire a CPA?

Question

So my CPA last week said that he can no longer do my taxes because he no longer does extension and I can't get my tax documents to him before their internal deadline. As such, I'm left with the question - should I hire another CPA OR try my hand at doing them myself? I'm married with a W2 income, 1099 income, 2 dependents, my own home and 3 residential rental properties (2 SFRs, 1 duplex). I'd love some advice!

Account Closed · Answer

Hmmm, finding a CPA 3 weeks before taxes are due? That isn't going to happen.

You self file the extension.

1. Then, in your current situation, you buy TurboTax Home & Business since you have Rentals & 1099. You organize all of your receipts by category & date (post office stamp purchases, supplies, shipping,  printing etc) and enter them into a spreadsheet. You scan all receipts sequentially, as many receipts as will fit on your scanner nicely and store them as PDFs since thermal receipts fade over time. You use clips to keep the original receipts in neat stacks. You place all neatly scanned originals and copies in a plastic tub you buy at Home Depot or Staples.

Remember: receipts, receipts, receipts. You are only looking for receipts at this point and you should have a lot of them.

2. You then create separate stacks for each property. You think of each property as it's own business. You separate out receipts for mortgage payments, interest paid, taxes paid, insurance paid, repairs made,  closing costs if you just bought the property, selling costs if you just sold the property, etc. You enter each expense by property and each income by same property into your spreadsheet and do the same process with the scanning.

3. You then create a stack for your 1099 employment and follow the same steps.

4. Then you fire up TurboTax, wait for it to update, include the state income tax module and once all of that has been done you enter your basic information.

The software will start asking questions on your employment. Just answer the questions. If you don't know the answer, write the question down so you can find out what your answer should be. You might have two pages of questions. That's ok. You will be going back though the sequence again to answer those questions.

4. Then it will take you to the section where you enter your properties.  It needs “date bought”, “how much paid”  etc.

5. Then it will whirl & fizzz & pretend to blow up but it's only looking for the things you need to still answer and it will give you a list of those things.

Once you've gone through it a couple of times you will see how easy it is to do the "answer the questions" part. This whole thing will take about 2 hours. Maybe 3. depending on how much you did on your spreadsheet. The software is only looking for totals.

Now, once you've done that, you have a general idea of your tax obligation.

6. Then, RATHER THAN SEND THAT IN: You schedule a visit with your CPA and you bring the nicely organized tub of receipts and a complete printout of all documents, even the computational ones, and you let the CPA go over them.

A CPA is accustomed to seeing the data in a certain format and will quickly look for certain schedules you couldn't give a hoot about. And rather than digging through a disheveled stack of papers in a  shoebox, your CPA will pull a  lollypop out of the drawer and reward you for good behavior.

The nice things about doing it this way:

1. It gets done (the IRS likes that part)

2. Your CPA is pleased you are so organized and they can do their job

3. You learn a LOT about what affects your taxes so you can learn to pay the least allowed by law

4. Your CPA can see your information and actually make suggestions on how to do things in a more tax efficient way going forward (as in hanging onto and depreciating properties to get the tax benefits instead of losing all your profits to taxes because you are a flipper).

Ron Trinh · Answer

As a CPA, it probably sounds biased to say hire a CPA but I genuinely believe having them done by a qualified professional will make future transactions with any of those properties go much smoother. Can you imagine putting together tax basis schedules for your rental properties when it comes time to sell or 1031? It is a giant headache to do even for us!

Bonus! - if you did not understand what I just said in the previous two remarks, please hire a CPA and make it easy on yourself going forward. Just my two cents!

Will Barnard · Answer

Good choice. One thing to consider here in your RE endeavors is to ensure that your work/labor fits your pay grade. You should not be swinging a hammer when yo can pay someone $20 an hour to do that. Same goes with taxes. While the pay grade is higher for such a task, making a mistake or missing a deduction can cost you more than the savings of the fee not to mention the time it will take you is likely much longer than the professional which is wasted time you could have spent doing task that the owner of your business should be doing.

John Vietmeyer · Answer

I had good experience with turbo tax a W2 and multiple rentals for years.  It kept me more engage in the process, data linkages to accounts was convenient, and was way cheaper.  Plus turbo tax will represent you for a small fee in the event of an audit, my accountant charges $100 an hour for that.  Now I’m married and use my wife’s accountant, wish I could go back to Turbo Tax.

Either way use Stessa, or something similar, to track your expenses.  Piles of receipts sounds like a nightmare.  If you don’t have recorded records then download all your transactions from your bank/cc into excel and tag them with the property and expense type.

Nathan Shankles · Answer

Thanks everyone for the good advice. I liked the idea of doing it myself and saving a few bucks but the time and potential for making a mistake would be a little too much for me this go round. So we decided to go with a local CPA who We trust. Thanks again for all your advice!

Eddie L. · Answer

How difficult are your taxes? Did your accountant help you with quarterly estimates? If so, maybe just take the Q3 workpapers and try to roll it over for now layering on just your Q4 income to be conservative. Calculate the amount of extension payment that needs to be made for federal and state purposes then pay that along with your extension. This is the lazy approach but buys you time to find your next trustworthy accountant. Just remember an extension to file the tax returns (federal and state) is not an extension to pay the respective taxes. If you're severely underpaid in taxes and you file for an extension you'll still be subject to penalties and interest.

Jason Smith · Answer

@Nathan Shankles I do mine myself. Two rental duplexs. Working w-2 couple. Tax questions are how I originally found Bigger Pockets. It probably took 24 hours the first time it with 1 rental property (but tons of receipts from rehabbing a horder duplex in a great part of town). TaxAct helps a lot. But you have to figure out cost basis of structure for depreciation over 27.5 years, depreciating anything over 2.5k over approriate schedule, what cost go towards cost of the loan and can be expensed over the life of the loan (and what to do if you refinanced last year), mileage deduction logs, etc, etc. It is a good way to learn. But you would have to know when everything started depreciation, and went into service from old tax returns. Starting with 3 properties would be very time consuming.

Khaled El Dorry · Answer

Absolutely hire a CPA.  Unless you’re an accountant ourself.  I can’t imagine doing my own taxes every year with a W2 + rental properties. Putting together the paperwork alone is painful so I sent imagine trying to file it myself with the IRS.

Kristen L Garner · Answer

From a lender's perspective, sometimes CPA letters are required as conditions for a loan to be approved.  So having a CPA is pretty valuable.

Should I do my own taxes or hire a CPA?

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