You’re probably fully aware of the major tax code changes that congress enacted in 2017 that took effect in 2018. As a real estate investor, you should have made changes to your tax strategy at the beginning of last year but if you didn’t now is the time to take action. This may be the year that you, and thousands like you, need to have your taxes professionally prepared. On the surface, the tax code changes might seem relatively straightforward if you only read the headlines. But once you get into the details, things become more complicated.
For a review of the tax code changes affecting real estate investors this year, take a look at this July 2018 article: Have You Updated Your 2018 Tax Strategy?
Even if you have been confident about completing your own tax return in previous years, filing 2018 taxes might be different. This year may be exceptional because of the major tax code changes. You should probably schedule an appointment with a tax professional sooner rather than later. There are pros and cons to DYI or having it professionally prepared and now is the time to decide which is most appropriate for you.
Even if you prepare your own, most people use one of the “big box” tax software programs that are widely available. This allows you to prepare your taxes on your own schedule instead of having to wedge your need into a CPA’s busy schedule. If you’ve previously prepared your own, you know that you first have to get all of your relevant paperwork organized. This needs to be done whether you do it yourself or have a tax professional do it. And of course, there will always be a few documents that you miss the first time around. You can either hunt these documents down when you make time to prepare your own taxes or do it on-demand when a professional is in the middle of your taxes and has to have that document right away.
Another major reason to do it yourself is that you have complete control over your data and security. You won’t have the person that may need to represent you to the tax authorities knowing all of the details that went into your filing (this could be a pro or con). You can also attempt to squeeze every last nickel out of your expenses, deductions, tax credits, and every other tax minimizing opportunity you can find. Also by doing your own taxes, you won’t have to try convincing the tax preparer to include a deduction or exclude income that he or she is apprehensive about.
You can prepare your returns for less than $100 but at the cost of your own time.
Maybe you’ve prepared your own tax return for many years related to the same business and have been comfortable doing so. But this year is different. Major tax code changes mean that this year you don’t know the technicalities of the tax code relative to your situation. Having professional help this year may give you the confidence to do it yourself next year and in future years.
Thoroughly learning and staying on top of the tax code can take hundreds of hours in research. This is especially relevant with this year’s tax code changes. The IRS publishes approximate average times that it takes to research and complete each form. For example, schedule E takes less than 6 hours but the required associated forms bring the total time to about 50 hours (form 4562 takes another 38.5 hours and form 8582 takes about 4 hours). When you do have a question, you have to rely on a temporary support team at the IRS for answers instead of a fully qualified CPA. IRS wait times are likely to be incredibly painful during the government shut down and for weeks afterwards.
If you make a mistake, it can be costly in terms of IRS and state penalties along with ultimately having to hire a CPA to straighten it out.
The most common reason given for preparing your own tax forms is to save money (second is staying in control and better understanding your business taxes). However, preparing your own tax returns often costs you more money through missed or incorrectly calculated deductions plus the lost opportunity cost of your time.
Please leave a comment on your thoughts about filing this year’s tax return as a real estate investor. Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].