When starting your investment journey, you’ve probably wondered at one time or another, “Are accounting fees tax deductible?” They are!
When filing taxes, rental property investors can deduct their real estate bookkeeping services. Expenses like bookkeeping software, tax preparation, and financial advice are deductible for real estate investors.
Read more to learn about what accounting and bookkeeping fees are deductible and how to pay less in tax preparation costs.
What fees are tax deductible?
Accounting fees in real estate investing are tax deductible. They’re considered an “ordinary and necessary” expense for business owners. Setting up and keeping books, filing the business tax return, and paying for tax advice throughout the year are all deductible expenses.
This goes beyond the expense of hiring a CPA or tax firm for their services and includes tax prep software, fees for filing, and the additional costs of tax professionals to calculate and create journal entries.
The personal part of business expenses (like your personal portion of a business meal), some fines and penalties, and membership costs for groups other than business-related professional organizations are generally not tax-deductible fees or expenses.
Can I deduct past fees?
Although this is a great question, only tax preparation fees incurred in the year you paid them can be deducted, and you cannot deduct past fees for previous accounting or bookkeeping. However, you can deduct state, local, and – in some states – transient occupancy taxes.
Tips to Pay Less in Accounting Fees
In this economy, many small business owners are looking to trim the fat on expenses. One area to tighten your budget can be found within your accounting fees.
Keep Records Organized & Prepare Throughout the Year
For many CPAs, they work on billable hours. If you’re disorganized and unprepared for a meeting with them, they will charge you more fees as they have more data to compile. Accounting fees may be tax deductible, but they can still be a big expense to your business.
However, if you prepare throughout the year by recording revenues, totaling expenses, and keeping up with receipts, your CPA will have less work to complete before getting to the actual paperwork of your tax return.
Use Software and Tech To Do More Yourself
“There’s an app for that” might be a bit of an overused saying, but it’s for good reason! Great bookkeeping, accounting, payroll, and tax software services are available that can make a lot of the record-keeping throughout the year much easier.
Not only does keeping your records throughout the year make for easier bookkeeping at tax time, but these software and tech subscriptions are often much more affordable than a professional bookkeeper or your accountant’s hourly fee.
Be Prepared and Focused in Meetings With Your Accountant
Since many CPAs work on billable hours, it’s important not to waste time in your meetings with them! Show up prepared with reports, questions, and an open mind to their feedback or requests for your specific setup.
Every CPA is slightly different in what reports they like to view, but at a minimum, you’ll need:
- A profit and loss statement (also called a P&L or net income statement) for each property. This report will let your CPA know how much you earned in rent and how much was spent on each property.
- A mileage log with your tracked miles, including the date of the trip, the vehicle used, the property for which the trip was taken, and a description of the trip’s purpose.
- A spreadsheet or report with your capital expenditures and fixed asset basis values, including how much depreciation you’ve claimed in the past. Some CPAs will track this on your behalf or for an additional fee, so it is important to know if you need these values ahead of time.
- Optionally, some CPAs like (but don’t explicitly need) a balance sheet showing your assets, liabilities, and equity. Not every real estate accounting service or software will provide one, but it’s helpful to include if yours does have this option.
Ask Your Tax preparer Why Fees Changed if They’ve Increased
If your tax preparer’s fees have increased, it’s important to know why! Maybe they are providing additional services they didn’t in the past or expanding their staff to process tax returns faster.
Regardless of why fees have changed, it’s important to have candid conversations with your CPA about what you should expect and how it can become a mutually beneficial relationship.
Try to Simplify Your Business Structure
If you have a complicated business structure, that makes for complicated bookkeeping and accounting for your CPA! If you’re looking to scale back on CPA or real estate accounting fees, it might be wise to simplify your business structure to save time and money.
How REI Hub Can Help
REI Hub is specialized rental property accounting software for real estate investors. It is equipped with features for both new and seasoned investors.
REI Hub includes a wide array of reports, such as net income statements, balance sheets, operating cash flow reports, and net operating income reports. It is also equipped with a tax review and a tax packet export designed specifically to provide CPAs with everything they need for filing your taxes.
Additionally, the default chart of accounts in REI Hub includes revenue and expense accounts that directly align with the Schedule E form. If you’re looking for an excellent real estate bookkeeping service, REI Hub is ideal for real estate investors.
At REI Hub, we take customer support seriously and want to ensure your questions are answered. Ultimately, we want you to feel confident using our software and empowered to be your own bookkeeper. Our system is tailored to real estate sole proprietorships, built from the owner’s perspective, and easy to learn without previous bookkeeping experience.
No credit card or commitment is required when creating a free trial account to start so that you can evaluate the software and bookkeeping tools for yourself. You can also check out our publicly available demo portfolio or read through our Knowledge Base and blog.
Are accounting fees tax deductible? FAQs
Are accountant fees tax deductible?
Yes! Accountant fees throughout the year and when doing your tax preparation are deductible for business returns like a Schedule C (used to report income and expenses of a sole proprietorship or single-member LLC) or a Schedule E (used to report income and expenses from rental real estate).
Are accounting fees tax deductible for individuals?
Under the Tax Cuts and Jobs Act, passed in 2017 and set to expire in 2025 unless otherwise extended, you cannot deduct personal tax preparation fees. You can, however, deduct costs incurred from bookkeeping and financial advice as an individual.
Can I deduct past fees?
Only tax preparation fees incurred in the year you paid them can be deducted, and you cannot deduct past fees for previous accounting or bookkeeping. However, you can deduct state, local, and – in some states – transient occupancy taxes.
What does my CPA need to do my taxes?
At a minimum, a profit and loss statement for each property and a mileage log. If they’re not tracking fixed assets and depreciation on your behalf, they would need the basis of each asset and the amount of depreciation you’ve claimed. Additionally, some CPAs like a balance sheet, but it’s not a necessity.
How can I save money on accounting fees?
Keep records organized and prepare for tax season throughout the year by being up-to-date on your bookkeeping. If it’s applicable, use real estate bookkeeping software services and tech to reduce the overall cost.
