Tax season is behind us. It’s May, “the lusty month of May,” as Vanessa Redgrave sang in the movie Camelot. But even though you probably don’t want to hear it, now is the time to begin thinking about the next tax season, and about enlisting professional help for doing your 2012 returns. It’s important to do it now, while professionally-informed adjustments can still be made.
Here is what we all know: If you are a “wage slave” working nine to five, your taxes are pretty simple. According to the old joke, the first line on your tax return reads, “How much money did you make this year?” The next line commands, “Send it in.”
That has more than a bit of truth to it, but thankfully we’re not there yet. The fact is that many wage-slave taxpayers get refunds. (We’ll pass over the fact that they do not receive compensation for the government’s use of their money for the previous 12 months.)
No, when things begin to get complicated is when you acquire a second home and start offering it as a vacation rental. As you’ll soon realize if you download and read the 32-page IRS Publication 527, “Residential Rental Property (Including the Rental of Vacation Homes),” welcome to “tax preparation hell.”
We’re not going to excoriate the federal tax code (to say nothing of your state’s tax code). We would just note that as self-employed professional writers, we used to take pride in getting the time required to prepare our income tax forms down to three work days (from a maximum of five days) each year. But once we added a vacation-rental property to the mix, all bets were off. It quickly became very clear that we needed professional help.
Admittedly, our situation is complicated by the fact that we work from home, so our tax returns have always been more complex than most. But there’s no getting around the fact that the federal tax code is a massive, and moving, target. Provisions get changed at the whim of Congress. Each year.
CPAs to the Rescue!
No non-accounting professional can possibly keep up. But Certified Public Accountants (CPAs) make it their business to stay abreast of changes in the tax code. We love our CPA. We’ve used him for decades, and he has saved us tens of thousands of dollars. We have absolutely no idea how he stays current on the law and maintains his sanity. But he does, and that’s all that matters!
So the first thing you should do upon finishing this post is to set about finding your own CPA. Start by seeking recommendations from friends and family members. You can also check the searchable directory at www.cpadirectory.com .
Owning and renting out a second home, from a tax perspective, is not nearly as problematic as owning some exotic tax-favored investment. Any CPA—as opposed to the storefront tax preparers who are open only a month or two before April 15 and closed for the rest of the year—is almost certainly qualified to do the job.
We can suggest two excellent books for you to consider to get yourself up to speed. The knowledge these books offer will be a great help in working with your chosen CPA, and in keeping the hourly costs down to a reasonable amount.
The first is Every Landlord’s Tax Deduction Guide by Stephen Fishman. As anyone who attended Emily’s HomeAway Summit presentation in April knows, we feel very strongly that as a VR owner “you’re a host, not a landlord.” Nonetheless, this book’s chapter about vacation homes and the tax issues involved is invaluable.
The second book is Buying a Second Home: Income, Getaway, or Retirement by Craig Venezia. This is among the very best books we have seen on every financial aspect of buying, owning, and offering a second home as a vacation rental.
Both books are published by Nolo (www.nolo.com ) and are regularly updated, so be sure to get the latest edition.
The taxman cometh. Always. The only wise approach is to arm yourself with knowledge and with professional assistance and expertise. Hiring a CPA will set you back a few bucks, but we suggest you simply view the fee as a cost of doing business. Or, in the words of the late Sue Rugge, an extraordinary entrepreneur in the online world and VR field, “Do what you do best…and hire the rest.”
Very few successful VR owners are skilled tax and accounting specialists. Get a CPA!
Alfred and Emily Glossbrenner
Alfred and Emily Glossbrenner are the founders of FullyBookedRentals (www.fullybookedrentals.com ), a website focused on helping new and experienced VR owners advertise, market, manage, and make money from their second homes. They also own and operate a very successful vacation-rental property in Bucks County, Pennsylvania (www.buckscountycottage.com ).