'Tis the season for CPA hunting. And every year there're dozens of repetitive threads on this forum asking/debating/complaining about the CPA charges. I will try to assemble all related questions in this one long post, based on my 25+ years of charging my clients and networking with my peers.

1. How much for a tax return?

It's the same question as "how much for a property rehab?" Makes sense? Even if you clarify that your return has "just 2 properties", it's still the same as clarifying for your contractor that "this house has only 2 bedrooms." It does not really define the scope of work, does it?

The complexity of your tax return preparation will depend on the type, the size and the use of your properties. It will depend on the state(s) where you live and/or hold properties. It will depend on the other businesses, investments, personal and financial circumstances specific to you. It will depend on how well your records are kept and organized. And so on.

2. How much do you charge per hour?

It does not really matter, unless you're paying for an hourly consultation. For tax preparation, it's the same as asking your general contractor how much he charges per hour. Would be pretty silly to ask, agree? Same here. If your "affordable" accountant charges $50/hr and takes 10 hours to complete the job, you will pay him $500. It still costs you more than an "expensive" $200/hr accountant who can knock it off in 2 hours resulting in a $400 bill.

Next, will you be able to verify how many hours was actually spent on your taxes? Are you going to sit next to your accountant and watch that she does not take any breaks? Because if you cannot verify that the number of hours on your invoice is justified, what's the point?

Still not convinced? How do you know who actually completes the technical work? Are you sure that your CPA personally does all the work, as opposed to someone on their staff or some outsourced provider, possibly even overseas?

No, I'm not suggesting that CPAs are unethical. I'm suggesting that your focus on the hourly rate is misguided. It does not really assure you of anything. Whether your CPA charges you per return, per hour or in some other way - it does not matter too much. What matters is the total final cost. And what matters even more is the quality of the work and the service. Again, very much like with contractors.

3. But it's a very simple return, only 20 pages!

Another common mistake is to estimate the complexity of the work by the number of pages. In some conventional tax places, they even charge you per IRS form. I find it very silly and misleading.

Here is an example. Last year, you bought your first rental property. What is required by the IRS is 3 pages: Schedule 1, Schedule E and Form 4562. Maybe a 3-page Form 8582, too. Here is what else I can include in my PDF file of your tax return:

Schedule E worksheet - between 3 and 7 pages
depreciation schedule(s) - between 1 and 6 pages (by the way, this should always be included!)
asset worksheets for each depreciable item - between 3 and 30+ pages
supporting statements for line items - between 1 and 10 pages
automobile expenses worksheet - between 2 and 8 pages
Form 1098 worksheet(s) - between 1 and 4 pages per mortgage
state-specific worksheets, MAGI worksheets, passive losses worksheets, and a whole lot more

By the way, including these extra worksheets will not create more work for me, they are already inside my tax software. My point is that the number of pages is a meaningless metric when evaluating the complexity of your tax return.

4. But my buddy is paying just $__ to his CPA!

Pointing back to #1 above, let's first make sure that we're comparing apples to apples or at least to some other fruit. Also, we need to consider what is included in the price, which I discuss next.

That said, just like with contractors, you absolutely can get very different prices for the same job. And, contrary to the popular cliché, you don't always get what you paid for. Sometimes you get lousy results despite the high price tag, and sometimes you do find a real bargain. If you were lucky to find one, congrats! Stay loyal and treat your CPA well, because true bargains are rare.

Here're a few things to keep in mind when it comes to lower-priced CPA services

New inexperienced CPAs (as well as contractors, lawyers, dentists and all other specialists) often undercharge because they are desperate to get their new business going and are concerned that they won't have enough clients. Usually it does not stay this way for long, and then they either raise their prices or fire you.
Many CPAs keep their rates low by relying on technology and outsourcing. There's nothing wrong with either, as long as it produces quality work. Unfortunately, it's easier said than done. Too often in these firms, the CPA who signs off on your tax return does not have the time or the motivation to check the work of the people to whom he delegates. You think that you hired a specialist and are paying for the corresponding quality, while in reality you might have some under-trained, unmotivated and unsupervised anonymous data entry clerk doing the work, full of costly mistakes and cut corners.
Often, low-cost CPAs get overwhelmed with the amount of work they take, resulting in rushed poor quality product and mediocre (or worse) service. Of course, it can happen with a high-priced CPA, too, but they're less prone to over-committing than those who are hungry and compete on price.

5. What are you actually buying?

Most conflicts in business (and in marriages, but I digress) happen because of disconnected expectations. So, when you hire a CPA for your taxes, make sure you're on the same page as far as what is and what is not included in the price. For example:

initial consultation
review of your prior tax returns for possible mistakes
sorting through and organizing your data, including receipts and spreadsheets
correcting and reconciling your books
finding and correcting inconsistencies and missing data
filing your federal and state extensions
optimizing your tax return with alternative tax positions
review/walk-through of this year's completed tax returns
amending your tax return if something ends up missing or incorrect
answering your ongoing technical questions
short- and long-term tax planning
reviewing and replying to the IRS or state letters
defending you against the IRS or state audits
providing financial statements or other data to lenders and other 3rd parties
assistance with loan applications
handling your payroll and payroll reporting
preparing 1099s/1098s and other informational forms
assistance with government loans and grants

I think it's obvious that the price of your CPA service will heavily depend on what is included. And if you assume that everything is automatically included, you're likely to have unpleasant surprises down the road. You cannot get room service at McDonald's prices.

6. Speaking of receipts, spreadsheets, logs and forgotten forms...

Probably nothing causes more friction between CPAs and their clients than bad records. What is considered acceptable records varies greatly from one CPA to another. However, none of the below qualifies as acceptable:

just put the same as last year
nah, I did not make any profit last year
I guess between $10k and $20k per property, or maybe $25k
I dunno, how much expenses are normal for my business?
whatever you think the IRS will accept

And although nobody brings us shoeboxes with receipts anymore, your set of bank statements where your personal expenses are mixed with your business expenses is not helping, either. No, it's not the CPA's job to figure it out for you. And if she agrees to take such a job, expect to pay for it accordingly.

One more thing. What happens if, after your contractor completed the job, you realize that you forgot to ask him to repaint the cabinet doors in the hall bath and install two extra outlets in the kitchen? Same thing happens if, after your CPA completed your tax return, you found two more K1s that you forgot about and a stack of receipts from HomeDepot that were not included in your original spreadsheet. It will cost you extra. One of my favorite after-the-fact client questions is - did I mention to you that I had a partner on this property?

7. I can never reach this CPA on the phone!

And - ready for the news flash? - you should not! Should not expect it. Let's start with the simplest reason of them all: imagine your CPA is working on your taxes. You want him to be focused, not make mistakes and finish it quickly, don't you? Do you want him to be answering some random calls while he should be working for you? (And possibly even on the clock.)

Yes, I know very well that that some CPAs brag about being accessible and always answering their phone. I used to say it myself when I just started and needed to find my first clients. Today it's simply impossible. I would not have any time left for anything else even if I wanted to answer my phone.

Don't forget that most of the time, it's not the CPA who is actually answering the phone but his staff. If your CPA personally answers his phone when you call, it means one (or more) of these things:

you're one of his special most valuable clients for whom he makes an exception
you also happen to be his golf buddy or his investment partner or his girlfriend
he is new and does not have enough clients
he is overwhelmed between projects and calls and is about to be checked into a facility
he is a unicorn or is otherwise extinct

What is reasonable to expect is that you should be able to reach your CPA at a prescheduled time and via an agreed upon channel: email, text, phone, video conference, whatever you guys agree on. And it should. not. be. free.

8. What?!? CPAs do not even answer questions anymore?

Of course we do. Just not for free. Yes, sure, I also know of many CPAs who do not charge for questions. But it does not mean the questions are FREE! All it means is that answering questions is built into their price! Along with an expectation that your questions are reasonably infrequent and do not require extensive research.

It's somewhat like a buffet. The price assumes that you can eat all you want, but there're still some expectations of being reasonable and not abusing it. I learned it many years ago when, along with other hungry college buddies of mine, I was politely asked to leave the place after spending two rather happy hours.

If a CPA is competing on price and trying to charge as low as possible, they won't have room for questions. In this case, either you cannot reach them at all or you will have to pay extra every time you have a question. Maybe you will get an occasional courtesy freebie, but not all the time. No free lunch outside of the mousetrap.

9. But it only took her 5 minutes to answer!

Yes. And prior to that, it likely took her hours to research this specific topic, and years to get to the level where she can answer without having to read the reference book. Still, some of your questions will require research. Nobody knows all the answers, even within our niche of real estate taxation. Besides, tax rules is a moving target. The last few years it has been a constant stream of ever-changing tax rules, with no end in sight.

You're not paying for her 5 minutes. You're paying for her professional expertise acquired over a very long period at a very high cost.

Also, 5 minutes x 10 questions, one per client = 1 hour. Yes, as an accountant, I do know that 50 minutes is less than an hour, thank you. 10 minutes for a stiff drink in between.

10. I want to start with a free initial consultation!

So do I. But for some reason, doctors don't do it. Neither do most of the attorneys. And neither do many CPAs.

Some do, and it's their business decision. As I mentioned earlier, it often indicates the CPA being new and not having enough clients. Not always, as some very experienced and reputable CPAs continue to offer these intro consultations. Important caveat: it's very common that the initial consultations are actually conducted by someone else on the CPA's team, not by the CPA himself. In either case, it's not something you should feel entitled to.

I have heard many seasoned investors telling stories how they booked a free consultation with every CPA and attorney they found, and how eventually it allowed them to accumulate some valuable knowledge. You're welcome to disagree, but I consider this tactic unethical. Kind of like going to artist receptions or open houses for free food & booze.

If you're really considering hiring a CPA who offers a free consultation, then it's exactly how it's meant work. Taking this freebie just to pick her brain without any intention of hiring her is wrong. It is also the main reason why most of the more established CPAs do not offer free introductory consultations.

An introductory qualifying call is common in most CPA firms. Its purpose is to determine whether there's a good fit between what you need and what they offer. It is very different from a consultation however. You're not supposed to get your technical questions answered on this call or receive tax advice. Always be upfront when are you scheduling a call.

11. Tax planning and tax strategists

Everybody talks how important tax planning is, especially in real estate. Most if not all of the tax accountants on this forum offer tax planning services and stress that our value is primarily in tax planning rather than in tax preparation.

Tax preparation reflects what has already happened. Definitely, correct tax preparation is vital, and there could be a huge difference in your bottom line if your CPA is not a real estate expert and does not do it right. Besides, there're often ways to optimize your tax returns and minimize your taxes.

In fact, not only can it be done on your current tax return, but on your 3 previous tax returns as well. Many of us specialize in recovering the money you left on the table during the past 3 years. it is called amending your past tax returns.

Still, the most dramatic difference we can make is in helping you structure your business and your real estate deals in the way that will minimize your future taxes. The so-called tax planning strategies. More often than not, you have to set them up ahead of time.

These are the important pointers to keep in mind when shopping for tax planning:

Tax planning is NOT part of tax preparation. It is a separate service and it costs more, often a lot more. It is more expensive than tax preparation since it is more difficult and more valuable.
Very different things can be all called tax planning. Estimating how much taxes you will owe next year if your income stays about the same is called tax planning. Not much value in this. Suggesting how to structure the sale of your property to minimize taxes is also tax planning, and it can produce tens of thousands of dollars in tax savings. And restructuring your entire business that involves multiple partners is yet another level of complexity and potential impact - and it is also called tax planning.
If tax preparation competency varies from one accountant to another, the differences in the CPAs' ability to provide effective tax planning are ten times more significant.

12. Packaged services.

Some CPA firms offer packaged services, aka subscription services. You're charged either a monthly or an annual fee that covers a variety of services:

tax preparation
consultations and tax planning
ongoing technical questions
bookkeeping services
CFO services
IRS/state representation services
legal services
real estate services

The scope, the quality and the pricing of these packaged services varies greatly. It's next to impossible to compare them from one firm to another.

Like everything else in life, it has pros and cons. One of the obvious pros is that you don't have to watch the clock and worry about the unexpected extra charges, provided you stay within the agreed parameters. One of the obvious cons is that it is not cheap. Take time to find the firm and the package that meets your specific needs.

13. Warning about designations: CPA, EA, etc.

In this post I kept referring to the CPAs, which is a state-issued license in accounting that everybody has heard of. There are also EAs (Enrolled Agents) - a Federally-issued license in taxation. And then there're tax accountants who do not have either of these two licenses.

In my personal opinion, there's little to no significance in the licensing. Competence is what ultimately matters. I know some very competent experts with either CPA or EA designation, as well as some without. I also have met a scary number of totally incompetent accountants despite the entire alphabet of designations attached to their names.

14. Warning about limited availability.

If you wait until close to the tax filing deadline to search for your CPA, your options will be limited. Real estate taxation is a highly specialized field. There're more investors looking for help than the good real estate accountants available. As a result, many of us get fully booked early. Some of us even get booked before the new year starts.