At what point is it affordable? (bringing in the pro's when you have one property)
Rental Property Investor · Orlando, FL · Member since 2022 · 29 posts · 12 votes
At what point is it affordable? (bringing in the pro's when you have one property)
Most Popular Reply
Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes
3yCongratulations on your first investment property! I've done my own taxes with TurboTax Premier with 2 rentals. I keep careful records of my income and expenses. I have a TurboTax CPA review my returns before filing. This year will be different since I did a major renovation on property #3 so I'll see how that goes once I start on my taxes.
I think it's valuable to learn how to do your taxes on your own so you see all your numbers but it does take lots of time. Eventually I'll hire a CPA once I get tired of doing my own taxes. I don't have an LLC or S-Corp (for now). If I had an LLC I would definitely have a CPA do my taxes.
21 Replies
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Ryan McKay! Gratz on the place!
We have one place and we have a CPA who handles our taxes. I haven't really talked with him about future planning, but it is on my list.
I would get a good CPA on board asap. It isn't that expensive and the money saved it worth it. Also, with the new IRS tax agents, they will be targeting investors like us so it is good to have protection.
- Rental Property Investor · Orlando, FL · Member since 2022 · 29 posts · 12 votes3y
Thanks Michael!
If you don't mind my asking- how do you use your CPA? Likewise, how often? Right now it all seems so conceptual, but I am trying to put together a mental picture of how it would actually work... what they can do, how often they have to do it, and how much (range) I should be ready for
- 3yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
@Ryan
I am a landlord with 37 units. We use an accountant for our end of tax year work, but track all of our expenses ourselves otherwise. Unless you understand how to do depreciation schedules, etc, you will definitely want a professional accountant / accounting service to help you with your properties, in my opinion. The daily stuff isn't too hard, and is pretty much tracked by your bank account. I don't know how you are setup, but would definitely suggest setting up a corporate structure of some sort. Opinions will vary widely. LLC's offer asset protection. We use a Sub-S corporation to collect our rents. All of the taxable income flows down to our personal 1040 tax return- which read another way - the corporation pays no taxes, they just pass through. But what you gain there is the ability to write off all sorts of stuff... Everything from 1/2 of business meals, to business auto expenses, asset depreciation, property depreciation, and the list goes on and on. It's really pretty easy to do all that. You would start off by gong to your state corporation commission and finding a name you can register. Then you can go to the IRS website and request an EIN for that entity. Then you can open a bank account in the company's name... and from there you track most of your expenses through your bank account. Many people use a quickbooks type accounting software... but if you are small, even that might be overkill. The key is to track your expenses to where your accountant can use the information at the end of the year to prepare your taxes. Our tax rate after write-offs was about 11% of our income last year... but what doesn't show there is the thousands (10's of thousands) of dollars a year that were written off in business expenses that on any other year you would have paid taxes on through your personal taxes. My vote would be to do the daily work yourself and pay your accountant to file your year end taxes. Do a consult with your accountant though so you can know what he wants you to collect for him along the way.
All the best!
Randy
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Congratulations on your first investment property! I've done my own taxes with TurboTax Premier with 2 rentals. I keep careful records of my income and expenses. I have a TurboTax CPA review my returns before filing. This year will be different since I did a major renovation on property #3 so I'll see how that goes once I start on my taxes.
I think it's valuable to learn how to do your taxes on your own so you see all your numbers but it does take lots of time. Eventually I'll hire a CPA once I get tired of doing my own taxes. I don't have an LLC or S-Corp (for now). If I had an LLC I would definitely have a CPA do my taxes.
- Rental Property Investor · Orlando, FL · Member since 2022 · 29 posts · 12 votes3y
Thanks for the answer @Randall Alan- and great detail!
I am currently set up as an LLC (Ezer Enterprises, LLC) specifically for many of the reasons you mentioned, but you definitely caught a few that I had yet to really think of!
We are currently running our business through a business banking account that then flows into REIHub where we do the day to day, but that only goes so far of course. Intuit of course offers some basic level of coverage of REI with TurboTax, but that is - I am sure- more of a band-aid than anything else. They problem (or perhaps "challenge" would be a better word) is that I know we could benefit from a CPA that is well versed with REI, but can they provide enough benefit with our ONE property to cover the costs during a time where we still aren't cashflowing. Maybe the answer is "yes", but I just don't have enough insight on what a CPA would even cost to answer that question (and I don't want to engage one until I have a little more understanding of what using a CPA "the right way" would even look like.
Chicken or the egg? ;-)
- 3yRandall AlanPro MemberInvestor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Ryan McKay:
Thanks for the answer @Randy great detail!
I am currently set up as an LLC (Ezer Enterprises, LLC) specifically for many of the reasons you mentioned, but you definitely caught a few that I had yet to really think of!
We are currently running our business through a business banking account that then flows into REIHub where we do the day to day, but that only goes so far of course. Intuit of course offers some basic level of coverage of REI with TurboTax, but that is - I am sure- more of a band-aid than anything else. They problem (or perhaps "challenge" would be a better word) is that I know we could benefit from a CPA that is well versed with REI, but can they provide enough benefit with our ONE property to cover the costs during a time where we still aren't cashflowing. Maybe the answer is "yes", but I just don't have enough insight on what a CPA would even cost to answer that question (and I don't want to engage one until I have a little more understanding of what using a CPA "the right way" would even look like.
Chicken or the egg? ;-)
I'll be the first to tell you that I HATE paying my CPA. The $350/hour thing just 'blows'. But, with that said, I know it's done right, I don't get audited, and I don't have to figure out how to do it or spend my time doing it. Once you engage in a business, there are things you can do yourself, and there are things you can't do. I haven't tried turbotax myself...but as another post said, it could probably handle it in the short term. I think the problem is that there are things you probably don't know about (or myself) to take advantage of, that the CPA will. As a minor example - mine asked me for my list of security deposits today, because those are liabilities to my business, and don't count as income when they come in (I do long term rentals). Would I have thought about that normally? Probably not. But for me that is $40,000 a year that gets segregated away from income. So there is such a thing as being too conservative with your business operations in my opinion. Taxes are not something you want to screw up. Sure, the first year you file them they will go through... and then 2 years and 11 months later (The IRS gets a 3 year look-back period) you'll get a random IRS letter in the mail saying that they think you owe money for something, and now you have done it wrong 3 years in a row. For me, where I'm at, it's peace of mind knowing that it is done right. I think the saying "Proceed at your own risk" is pretty applicable. We have another phrase in our business though... it usually refers to repair expenses... but it is applicable a lot of places... and that is: "There's a budget for that." For repairs, we set aside money each month from each rental property for repairs. Likewise, there are just expenses that you should anticipate incurring. The bigger you get, accounting should be one of those. Not necessarily monthly - but definitely the year ends (in my opinion).
Randy
- Rental Property Investor · Orlando, FL · Member since 2022 · 29 posts · 12 votes3y
@Randall Alan - again, great deails- thank you sir! The real world examples really hit home and help to paint a very solid picture!
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
I would say you can't afford not to have a pro doing your taxes, even with only one property.
- 3ySimon W.Business MemberReal Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 677 votes
Quote from @Randall Alan:
Quote from @Ryan McKay:
Thanks for the answer @Randy great detail!
I am currently set up as an LLC (Ezer Enterprises, LLC) specifically for many of the reasons you mentioned, but you definitely caught a few that I had yet to really think of!
We are currently running our business through a business banking account that then flows into REIHub where we do the day to day, but that only goes so far of course. Intuit of course offers some basic level of coverage of REI with TurboTax, but that is - I am sure- more of a band-aid than anything else. They problem (or perhaps "challenge" would be a better word) is that I know we could benefit from a CPA that is well versed with REI, but can they provide enough benefit with our ONE property to cover the costs during a time where we still aren't cashflowing. Maybe the answer is "yes", but I just don't have enough insight on what a CPA would even cost to answer that question (and I don't want to engage one until I have a little more understanding of what using a CPA "the right way" would even look like.
Chicken or the egg? ;-)
I'll be the first to tell you that I HATE paying my CPA. The $350/hour thing just 'blows'. But, with that said, I know it's done right, I don't get audited, and I don't have to figure out how to do it or spend my time doing it. Once you engage in a business, there are things you can do yourself, and there are things you can't do. I haven't tried turbotax myself...but as another post said, it could probably handle it in the short term. I think the problem is that there are things you probably don't know about (or myself) to take advantage of, that the CPA will. As a minor example - mine asked me for my list of security deposits today, because those are liabilities to my business, and don't count as income when they come in (I do long term rentals). Would I have thought about that normally? Probably not. But for me that is $40,000 a year that gets segregated away from income. So there is such a thing as being too conservative with your business operations in my opinion. Taxes are not something you want to screw up. Sure, the first year you file them they will go through... and then 2 years and 11 months later (The IRS gets a 3 year look-back period) you'll get a random IRS letter in the mail saying that they think you owe money for something, and now you have done it wrong 3 years in a row. For me, where I'm at, it's peace of mind knowing that it is done right. I think the saying "Proceed at your own risk" is pretty applicable. We have another phrase in our business though... it usually refers to repair expenses... but it is applicable a lot of places... and that is: "There's a budget for that." For repairs, we set aside money each month from each rental property for repairs. Likewise, there are just expenses that you should anticipate incurring. The bigger you get, accounting should be one of those. Not necessarily monthly - but definitely the year ends (in my opinion).
Randy
I wouldn't be so quick to think this "I know it's done right, I don't get audited..." my client paid good money for a CPA from this forum and managed to get my client audited. Client spent over $120K in legal fees and still ongoing. Not all CPAs are created equal. This CPA is "real estate" focused.
Better to always have a 2nd or 3rd pair of eyes.
- Investor · Member since 2022 · 1k+ posts · 754 votes3y
A great tax strategist/CPA likely won’t be cheap. However, I think it’s one of your most powerful weapons in scaling
- Rental Property Investor · Orlando, FL · Member since 2022 · 29 posts · 12 votes3y
Thanks for everyone's candid feedback- HUGELY impactful!
If I might redirect slightly- for those who enlisted a good CPA during their opening stages of their investing journey- how did you find said CPA?
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Quote from @Ryan McKay:
@Becca F. - Great stuff- thank you! If you don't mind my asking- Has TurboTax served you well in the opening days of your journey?
Yes, so far it's worked out. When I only had one property, the SFH, it was pretty easy and didn't take much time to do my own taxes. I have a CPA from TurboTax represent me in case I'm audited, since I bought the TurboTaxPremium. I also have a multi-unit owned with co-investors. The property management team sends me the cash flow for 12 months. As far as help, it depends on who you talk to in TurboTax. The last CPA on there that I asked for help was a real estate investor so he gave he some good advice.
I asked friends for local recommendations for CPAs and none of them would recommend their CPAs (one is retiring). That's not a good sign. That's why I just did my own taxes. I didn't really want to just walk into the local H&R Block office or go through Yelp reviews to find a CPA. Eventually I'll get a CPA.
@Ryan McKay it is unclear to me how much you know about RE write offs. It is my view you should have consulted a CPA last year to understand the write off possibilities.
I am not a CPA or tax expert, so verify with your trusted expert.
If your income is over a threshold and you are not a RE professional, the negative return gets banked for future years that have income. Of course the fed does not pay interest on this banked loss. Therefore if your income is above the threshold and you have losses, it is very beneficial to be an RE professional. Of course the IRS defines what constitutes a RE professional. If you were cognizant of this, in 2022 you possibly could have taken action to qualify as an RE professional and document the qualification. This could be more difficult or impossible at this point.
Consult a tax profession now. It seldom is too late to benefit from knowledge. Tax professionals have to know a lot of, but only a subset is important to any client. Leverage the tax professional’s knowledge. Tax professionals deserve to be compensated for their knowledge.Good luck
- Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes3y
Quote from @Randall Alan:
Quote from @Ryan McKay:
Thanks for the answer @Randy great detail!
I am currently set up as an LLC (Ezer Enterprises, LLC) specifically for many of the reasons you mentioned, but you definitely caught a few that I had yet to really think of!
We are currently running our business through a business banking account that then flows into REIHub where we do the day to day, but that only goes so far of course. Intuit of course offers some basic level of coverage of REI with TurboTax, but that is - I am sure- more of a band-aid than anything else. They problem (or perhaps "challenge" would be a better word) is that I know we could benefit from a CPA that is well versed with REI, but can they provide enough benefit with our ONE property to cover the costs during a time where we still aren't cashflowing. Maybe the answer is "yes", but I just don't have enough insight on what a CPA would even cost to answer that question (and I don't want to engage one until I have a little more understanding of what using a CPA "the right way" would even look like.
Chicken or the egg? ;-)
I'll be the first to tell you that I HATE paying my CPA. The $350/hour thing just 'blows'. But, with that said, I know it's done right, I don't get audited, and I don't have to figure out how to do it or spend my time doing it. Once you engage in a business, there are things you can do yourself, and there are things you can't do. I haven't tried turbotax myself...but as another post said, it could probably handle it in the short term. I think the problem is that there are things you probably don't know about (or myself) to take advantage of, that the CPA will. As a minor example - mine asked me for my list of security deposits today, because those are liabilities to my business, and don't count as income when they come in (I do long term rentals). Would I have thought about that normally? Probably not. But for me that is $40,000 a year that gets segregated away from income. So there is such a thing as being too conservative with your business operations in my opinion. Taxes are not something you want to screw up. Sure, the first year you file them they will go through... and then 2 years and 11 months later (The IRS gets a 3 year look-back period) you'll get a random IRS letter in the mail saying that they think you owe money for something, and now you have done it wrong 3 years in a row. For me, where I'm at, it's peace of mind knowing that it is done right. I think the saying "Proceed at your own risk" is pretty applicable. We have another phrase in our business though... it usually refers to repair expenses... but it is applicable a lot of places... and that is: "There's a budget for that." For repairs, we set aside money each month from each rental property for repairs. Likewise, there are just expenses that you should anticipate incurring. The bigger you get, accounting should be one of those. Not necessarily monthly - but definitely the year ends (in my opinion).
Randy
Yes this is good info I was doing work I thought was deductible it was not it was a BIG rehab on rental .Stay with the pros C.P.A cost but in the long run it's cheaper .
- Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes3y
Things started to change rapidly for me once I scaled to 5 units. That’s when I began to seek expert advice and structure things more like a business. It was out of necessity.
Quote from @Randall Alan:
@Ryan
I am a landlord with 37 units. We use an accountant for our end of tax year work, but track all of our expenses ourselves otherwise. Unless you understand how to do depreciation schedules, etc, you will definitely want a professional accountant / accounting service to help you with your properties, in my opinion. The daily stuff isn't too hard, and is pretty much tracked by your bank account. I don't know how you are setup, but would definitely suggest setting up a corporate structure of some sort. Opinions will vary widely. LLC's offer asset protection. We use a Sub-S corporation to collect our rents. All of the taxable income flows down to our personal 1040 tax return- which read another way - the corporation pays no taxes, they just pass through. But what you gain there is the ability to write off all sorts of stuff... Everything from 1/2 of business meals, to business auto expenses, asset depreciation, property depreciation, and the list goes on and on. It's really pretty easy to do all that. You would start off by gong to your state corporation commission and finding a name you can register. Then you can go to the IRS website and request an EIN for that entity. Then you can open a bank account in the company's name... and from there you track most of your expenses through your bank account. Many people use a quickbooks type accounting software... but if you are small, even that might be overkill. The key is to track your expenses to where your accountant can use the information at the end of the year to prepare your taxes. Our tax rate after write-offs was about 11% of our income last year... but what doesn't show there is the thousands (10's of thousands) of dollars a year that were written off in business expenses that on any other year you would have paid taxes on through your personal taxes. My vote would be to do the daily work yourself and pay your accountant to file your year end taxes. Do a consult with your accountant though so you can know what he wants you to collect for him along the way.
All the best!
Randy
did you hire a lawyer to create S-corp and did you do it yourself? What is advantage of S-Corp Vs. LLC? Sorry for the dumb questions.
Thank you
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votesAll I do is bounce some questions via email once in a while. I gather up all my stuff I have worked on all year, expenses etc all put in a spreadsheet and send it on with all the receipts and bills. Done. Super easy.
Quote from @Ryan McKay:
Thanks Michael!
If you don't mind my asking- how do you use your CPA? Likewise, how often? Right now it all seems so conceptual, but I am trying to put together a mental picture of how it would actually work... what they can do, how often they have to do it, and how much (range) I should be ready for
- 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Look for some local REI events and attend. Many will eventually cover the basic of all this.
As you grow, you can then spend money on better experts.
Logical Property Management4.9465 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.