One question that I have repeatedly gotten is if accountants are worth it or should a landlord just do it on his own, when it comes to income tax preparation.
Now, this has nothing to do with QuickBooks. Quickbooks is an excellent example of accounting software to help you track your income and expenses, invoices, bills and a whole lot more… easier than any paper system or spreadsheet. It also prints out great reports that you can use to evaluate your cash flow, income and expenses and help PREPARE FOR (not prepare) your taxes.
At some point, every new rental property owner who used TurboTax or some other income tax software prior to owning properties probably asks themselves this question. Although I don’t have any problem with these tax software packages, owning rental properties makes tax time a little more complicated than before you owned them.
Owning rental properties throws a whole bunch of new items into the equation. For example, different things that you buy or do for your properties get depreciated at different rates. Keeping good track of the basis in your properties and knowing what items can be immediately deducted from your settlement sheet and which are simply added to your basis is extremely important.
It could be that the tax software you have does a really great job at helping to track this, but if you are even audited, are you comfortable with answering the questions an IRS agent might have about how you tracked, expenses and reported your income and expenses?
Now, I’m not an accountant (and I don’t play one on TV, as they say). But my strong opinion, to anyone who asks, is that the right accountant is worth their fees because of the advice that they provide and the function they play in watching your back and keeping your nose clean with regard to income tax reporting.
The caveat is that you want to hire the RIGHT accountant. I have an accountant that has excellent knowledge of my personal situation and understands which deductions are appropriate to take in my situation and which are not. He also knows what my goals are for the rental properties and helps me plan on the future structuring of my taxes. My last accountant hated rental properties and always told me they were a waste of time and money… The year he started ranting about that was the last year I hired him.
But, hey, maybe I’m wrong. If so, please chime in. What do you use, an accountant or tax preparation software? Why?
Steven A Boorstein
Landlord & Author
How To Buy Your First Rental Property and Beyond
ManageRentalProperty.com
I totally agree that hiring a professional accountant is worth the cost. Accounting is not an easy task and is constantly getting more and more complicated as the government make everything harder for us.
Since getting an accountant a few years ago I am a lot more chilled on the financial side of my business and am nowhere near as bogged down.
I do have to say though I don’t think you need one until you have a few properties.
But how do you find the right accountant?
I was referred by a friend, but after I had to send him back to the drawing board once for mistakes he had made and a second time because he misinterprets &/or contradicts the instructions from the IRS, (and seems to rely to heavily on some computer software to tell him how to do the taxes and does not really seem to understand everything himself), I have really lost confidence in him and don't know what to do. I don't know how to do all of the depreciation myself (just began landlording last year) and so that's why I hired someone, but he can't seem to get it right. Again, how do you find the right accountant?
Finding a good accountant who understands the ins and outs of landlording and rental property ownership is not always that easy. I'd look for someone who has a number of years of experience, is a CPA, an has at least several other larger clients who own rental properties.
How do you find this person? Ask for referrals from other local rental property owners, look at the accountants who are part of you local Landlord or Real Estate Investment Clubs/Associations and call them. Ask them if they understand the rental property/landlording business. Ask them if they own any rental properties themselves, or have they in the past owned any rentals? Search online or in the yellow pages for accountants that specifically mention their expertise in real estate.
A great book to familiarize yourself with on the ins and outs of tax issues and opportunities for rental property owners is
"Every Landlord's Tax Deduction Guide", which is available through my site at
https://managerentalproperty.com/books.aspx
In the end, finding a good account is well worth the effort, in my opinion. However, also educating yourself is just as important. No accountant will know your business as well as you do. A great one will help guide you and keep your taxes relatively audit-proof. However, it's still a two way street and you also need to know enough to bring issues and potential opportunities to reduce your taxes to your accountant.