Tax season is overwhelming enough just filling out a 1040EZ. Adding in a rental property Schedule E can make you feel completely lost. Many tax programs such as TurboTax and H&R Block have extended versions you can buy covering rental properties, using the IRS form Schedule E. The question facing many landlords is whether to use these increasingly intuitive electronic programs to file their tax returns, or to hire a CPA to be sure the form is completed by a professional.
There are three key factors to consider when considering this question.
It’s a good idea to evaluate the value of hiring a CPA or IRS enrolled agent. After all, the cost of hiring a licensed professional is typically considerably more than the cost of purchasing the software.
Tax preparation software advertises that it will walk you through the entire process. That is fine if you understand the questions that you are being asked and the options you have to choose from. However, if you do not understand the correct answers to queries about depreciation, mileage, marketing expenses, or repairs versus capital expenditures, these queries in the software will do you little good. If you do not know how to answer these questions in your best interest, your tax returns could be incorrect, and could cost you a little, or a lot, of money.
If you do know the correct answers, then you may be able to use software to file your taxes. You may arrive at the same end results as a tax professional at a fraction of the cost. In looking at your situation, a CPA may know of deductions that a software algorithm may not. This matter is one of trust: do you trust the software makers, or do you trust your tax professional to get you the greatest and most fair return.
Perhaps you have been completing your federal tax return for decades. Or maybe you are at the beginning of your career and have only just begun to pay taxes. You may be confronting, for the first time, the question of how adding a rental property will impact your taxes.
Whether you will have a tax professional prepare your return or will do it yourself, you should allot extra time to complete your return, or to hire and meet with your tax advisor. One way or the other, you will need to have the supporting paperwork to submit with your return or to submit to your CPA. Taking the time to organize these materials will smooth the process of completing your return.
Also, bear in mind that within the intricacies of the tax law, there may be more than one way to classify certain income or expenditures. This can be the case with improvements (which must be capitalized and depreciated) versus repairs (which can be deducted all at once). While there are guidelines differentiating the two kinds of work, gray areas do exist. A tax professional should be able to help you navigate these pitfalls without having to learn all of the correct information from scratch.
When filing with a tax professional, there may be a lag time while you wait for them to complete their work. When you do it yourself, it may take considerable time and effort to find out the correct answer to each question, or to double and triple check your figures. Your level of competence and confidence will help determine whether the electronic return will take you a little or a lot of effort.
Maybe you have decided that hiring a CPA is the best route for you. You’re prepared to provide the information and pay the fee, but sometimes finding a certified accountant is challenging. While tax software seems to be available everywhere, for some, hiring a CPA might prove overwhelming.
Here are three ways to find a CPA or enrolled agent:
Conduct an internet search: Look for local CPA firms that are highly rated by the Better Business Bureau.
Ask around – Whether you out the call for recommendations in person or via social media, you may find that many people in your network rely on services from a trusted CPA. This is also a great way to find a professional with any specializations you may need.
Check your state board of accountancy – Both CPAs and enrolled agents have passed very specific requirements and therefore can be found by their certifications.
Just remember that not it’s important to have a good working relationship with your CPA. If the first CPA doesn’t work out, makes sure you continue to look and you will find someone who perfectly fits your needs.
When approaching the question of whether to complete your taxes with a computer application versus paying a CPA, be sure to keep an open mind. There are many factors to consider, and your goal is to make an informed decision. Just remember that the total cost could be more than just the out-of-pocket expense. In reality, lost deductions cost you.