Tag: taxes

To Mike P. of California:

This truly depends on you and your understanding of the tax laws and your commitment to maintain the appropriate records and perform the calculations yourself. Although I had taken Micro- and Macro-Economics, I went to the IRS website and downloaded IRS Publications on Rental Properties, Bookkeeping and Depreciation/Expenses and read through them thoroughly. These publications also give examples many of which closely represented my position which were helpful in understanding how to handle my records and prepare my own taxes. These publications walk you through the relevant scenarios which were easily transferable to my specific situation. Following these processes described within the publications will normally ensure IRS acceptance although you may not secure all possible deductions which an accountant might identify. However, an accountant costs money and I am not sure it would be worth the extra cost. Even hiring an accountant still requires a lot of work on your part to gather and identify the receipts/records. I find that unless there are significant tax changes, the tax preparation and submission process are the same or similar each year so experience preparing taxes in previous years will assist in preparing the taxes in the current year (if you forget, you can always look up what you did in previous years and model that approach for the current year with the exception of current year tax changes). I have developed forms for gathering, logging and categorizing receipts and developed Excel spreadsheets for calculating depreciation for each property. The spreadsheet was developed when tax software was not available and I still use it today. Many tax software packages will do some of these calculations for you and you may consider purchasing one software package and getting the update each year. This may be extremely beneficial in place of an accountant. Just beware that even using tax software, most of the preparatory work is still needed in managing and recording receipts. So, forms like I created do assist in tax preparation whether it be for yourself, an accountant or utilizing tax software. Like stated when using an accountant, there is a cost to tax software for the initial purchase as well as yearly purchases of the same brand for continuity. However, like an accountant, the tax software may get you additional deductions that you may otherwise miss when doing you own taxes and that may cover, or exceed, the cost of the tax software. When I started my business, tax software was not available and thereafter for many years after starting my business. I tried utilizing tax software in later years but it was not convenient for me as previous depreciation could not be entered. However, this may have changed. I still do my own taxes utilizing the same approach each year and utilizing the forms and spreadsheets I had previously developed. Over the course of my business, I have not had any issues with the IRS so I must have been doing something right.

In summary, utilizing a tax accountant or tax software is a decision you need to make with your comfort or level of knowledge of bookkeeping and/or tax preparation. If I were to start my business today, I would still download the relevant IRS publications, read them thoroughly, prepare the necessary forms for categorizing receipts and then purchase tax software to prepare my taxes. 

For further information, consider purchasing my book. You can find further information in the book at:

Chapter 2

• Commitments
• Tax Implications