Should I hire a CPA for tax planning when I am just starting out?

Question

Hi BPers, it's almost year-end and I am researching tax filing/planning options for me and my partner. We are in Cali, both earn decent W2 and just started out investing in 2021. We have 1 primary residence, for which we are room-hacking, 2 out-of-state rental properties (1 turn-key, 1 light reno), and 1 syndication.

I am currently researching CPAs - some of them are charging ~$500-$1000 per filing per person plus tax planning services. I have been listening to many tax-related BP podcasts, and I am aware that tax planning is extremely important for RE investors - but I am not sure if it's worth spending that much when we are just starting out. Any advice for newbie investors?

Pros of hiring a CPA:

Good to throw the tax planning burden on a pro and hold him/her accountable; build an early relationship with the CPA; tax-aware RE decision going forward.

Counter thoughts:

Save money by filing ourselves, learn tax filing through the process; be frugal and scale first, then find CPA later; not much value provided when I only have 2 rental properties.

Any advice would be greatly appreciated!

Jim Wellington · Answer

Many of the tax prep software programs available can handle rental properties. Having a cap may help but with a little research and spending some time on the program I think you can handle it yourself. HR Tax Cut has an upgraded software program specifically for rental properties.

Michael Plaks · Answer

$500-$1,000 per filing of Federal and California tax returns is dirt cheap if you are hiring a professional. Even chain outfits like H&R Block would charge you this much if not more, and they're likely to make mistakes.

It sounds like you measure value of a CPA in terms of "return on investment" - as in, will they save me $5,000 if I pay them $1,000? This is not how it works. Any CPA who promises to save you a specific $X amount should be scratched off of your list, IMHO. This is not what our value is. Read this: https://www.biggerpockets.com/forums/51/topics/998718-explained-how-cpas-charge-you-and-whyI'd go with your option B, based on your description and approach.PS. I'm mildly curious about your intention to "hold him/her accountable"  :)  Wonder what you mean.

Aaron Zimmerman · Answer

Generally if you’re over $150k in income and not REP status, it’s going to be hard to save money year 1. I do think there’s value in getting a good CPA to get the basis right and your tax return filed properly (and the associated peace of mind with it). As for tax planning, I’d save your money until your REPs or willing to explore STRs

Albert Blair · Answer

Jack, I am tracking this thread. I have the same question that you have. However, I am leaning towards the side of getting a CPA as soon as possible. I believe if your team members grow with your business from stage one, it will be better off in the long run. I'm not exactly sure if this is true, that's why I want to see the responses also.

Robert Stanley · Answer

Looking for this answer as well. I've had the same findings and thoughts as you Jack

Becca F. · Answer

@Jack Jiang

It depends on who the CPA is when I call for help. There was a mistake on the rental income reported so I had to fix that and file an Amendment. The last CPA said he owns 15 properties so he gave me lots of helpful advice on how to file my 2022 returns. He also sent me a link on what counts as capital expenses and how to write them off on my renovation, what to depreciate and for how many years.

Jack Jiang · Answer

That's what my partner said to me :)) Have you found the CPAs provided through TurboTax useful?

Jack Jiang · Answer

@Jim Wellington have you found one of the software better than another? We've been using Turbotax but things got confusing from time to time.

Becca F. · Answer

@Jack Jiang

I do my own taxes. I use TurboTax Premier and their CPAs review my return before I file. I have 3 properties, 1 SFH that was recently renovated, 1 multi-unit (co-owned with other investors), 1 SFH out of state.  None of them are in LLCs. The multi-unit and out-of-state SFH were on my 2021 tax returns. The renovated house will be on this year's return so this will take a bit of work.  I think learning how to file on my own was been very valuable. If I had just handed over my information to a CPA, I wouldn't have awareness of what's going on in detail.

I'm in the Bay Area and know one CPA charging $1500. The $500 to $1000 you  were quoted sounds very reasonable if that's for federal and state tax filing. For now, I'll probably do my own taxes. If I get LLCs for my properties or future rentals or just get tired of doing my own returns, that's when I'd get a CPA.

Eliott Elias · Answer

Hire the CPA, they may not save you money year one. But they will set you up to save in the grand scheme of your career, don't come to them when you desperately need them.

Should I hire a CPA for tax planning when I am just starting out?

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