The Advantages of Having a Trustworthy Accountant

After writing all those posts about early retirement, you’d think I’d have said how much I appreciate our accountant by now.
He’s our Wizard of Oz — the Swami of our savings plan — a bright spot in a sometimes confusing world.
For one thing, he’s very good at what he does. He’s saved us money and headaches, and he’s a friendly Minnesotan to boot. Read on for why having a reliable accountant matters.
Right after I posted about accelerating early retirement, I had our annual check-in with “the Wizard.” An accountant does a lot more than file your taxes like H&R Block—he’s also your tax strategist.
With our Airbnb, I’d assumed we could treat it like our long-term rentals for taxes. My accountant corrected me: Airbnbs are treated like hospitality businesses and go on Schedule C. For tax purposes they’re basically small hotels.
That matters because, unlike long-term rentals, Airbnb profits are subject to self-employment tax—about 15% extra for Social Security and Medicare—just like a hotel or B&B. Depreciation options are also more limited. You can depreciate an Airbnb, but you can’t accelerate that depreciation the same way you can with other rental properties.
We are accelerating depreciation on one of our four rentals to reduce taxes before I retire early. It’s a good move—right up there with maxing 401(k)s and HSAs while you’re still earning.
Even with the tougher tax rules, our Airbnb should make nearly 33% more cash flow than our current rentals, based on my forecast—assuming I get it furnished and ready. Stay tuned.
We also talked about my plan to retire in July 2019. I liked that his ears perked up when I first mentioned this in 2015, and he still thinks it’s a solid plan.
He pointed out that moving from employed to self-employed is often the smartest choice tax-wise.
That led to questions about health care, which is another huge benefit of having an accountant.
If you own a business—an Airbnb, a blog, or a property management company—you can deduct 100% of your health insurance premiums. That confirmed what I’d written earlier. I hadn’t fully considered this angle.
My accountant also recommended a plan with a Health Savings Account and suggested we max out the family HSA ($6,750). That contribution is also 100% deductible.
So, if we pay $500 a month for health insurance, that’s $6,000 a year plus the $6,750 HSA max—$12,750 in deductions right away. We might owe very little at tax time.
We moved on to growing pains in my wife’s practice. She sees patients all day and can’t keep up with bookkeeping, so we need part-time help. The big question: employee or contractor?
Again, the accountant came through. We thought we’d need to set up payroll and deal with all the payroll taxes and admin. But if the part-time worker sets their own hours, we can hire them as an independent contractor and avoid payroll headaches.
Hooray—huge relief. I can vouch for how painful payroll is; we have a nanny and it’s no fun.
Know when to use a good accountant. We used TurboTax just fine until my wife started her practice and I added rentals. Even if you plan to file a Schedule C yourself, it can help to spend an hour with an accountant to see if their advice will pay off.
Full disclosure: we pay about $1,500 a year for tax prep so our returns are done properly. We file one return that covers our passive real estate and one Schedule C for my wife’s S-Corp practice. Tax prep fees are deductible as a business expense.
Since working with him for six years, our accountant has likely saved us tens of thousands of dollars. Before that I was a TurboTax guy. I still recommend DIY taxes if you’re a W-2 employee with no side businesses or other complications.
We don’t just hand over our docs and forget about it. We meet with him in the fourth quarter to plan next year’s tax bill and long-term strategy—like we did on Tuesday.
That one-hour consult costs money, but skipping it would be a false economy. I left Tuesday’s meeting with new ideas that should save us thousands. TurboTax can’t do that. You need a real person.
Update 8/11/22: We’re now thinking about dropping our accountant. After a decade together, last tax season went badly. A botched Roth IRA conversion added over $8,000 to our tax bill—an error I think better advice could’ve avoided.
I’ll write more about this soon. We’ve had a great experience with the estate accountants at Wipfli LLP and may use them for our personal returns next year. Stay tuned.