Being a small business owner is hard enough, but when you work for yourself in real estate, that struggle is taken to a whole other level. There are so many things to take care of and aspects to running a business that other people just don’t realize need to be done.
This means it’s difficult to take care of everything on your own—and it’s important to delegate some of those responsibilities.
There’s nothing wrong with a do-it-yourself mentality. And while there are plenty of things you can do on your own in your real estate business, taxes and accounting probably shouldn’t be among them. Why make April more stressful? In this case, you need the assistance of a qualified certified public accountant, or CPA. The sooner this is done, the easier it will be for them to get your business organized and prevent any issues when tax season comes.
Dreading tax season?
Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.
What does a good CPA do?
There’s a difference between being good with numbers and knowing how to organize financial documents and numbers in a manner that’s both accessible and approved by the IRA. That’s where a CPA comes in.
To begin with, a good CPA will help you stay organized by gathering and organizing all financial documents into the appropriate files and spreadsheets. This gives you an accurate outlook on the money that’s coming in and going out, what your tax returns and deductions look like, and what your current real estate holdings are.
Also, a CPA offers some legal protection. They are trained to understand all kinds of laws and rules laid out by the IRS so you don’t have any legal issues with your taxes or the money in your business going forward.
On top of all that, a good CPA saves you money. They can help you allocate your money to the right places that will benefit your bottom line. So even though hiring a CPA is an upfront cost, it’s one that will save you money long-term.
Keep in mind that CPAs are more than just tax preparers. They are assets to your business overall. CPAs are tax professionals who help you organize and streamline your business to make sure your numbers make sense at every turn—whenever you might need them. This helps you avoid any legal issues, like audits and fees.
Why should you should hire a CPA for your real estate business?
We’ve already discussed how a good CPA will save you money long-term, but just as important as your money is your time. Dealing with the financial and legal aspects of a real estate business is time-consuming. On top of that, you have to actually run your business. That alone takes tons of time out of your everyday.
Plus, if you’re someone who isn’t as well versed in all the things a CPA is meant to do, you’ll need to spend even more time educating yourself on how to properly take care of these aspects of your business.
If you have all that time on your hands, then great. But chances are, your focus is elsewhere, and finding a good CPA will take a huge stress off of your shoulders.
Think of a CPA as a directory of money and legal knowledge. A good one can handle all the issues your real estate business may have in that regard and any questions or concerns with ease because they have experience, knowledge and understanding you don’t have.
How to find a good CPA
Now that you know just how important a CPA is for your real estate business, you need to find one that works for you. Not every CPA will be the right fit, and there are a number of factors to consider when picking anyone to work for you and your business.
Specializes in real estate
Because you’re looking for a certain kind of CPA, you’ll need one that caters to your specific real estate needs. Do they have experience working with other investors? Do they understand real estate taxes specifically?
Has the right credentials and accreditations
Once you find a CPA that understands real estate the way you need them to, you’ll have to dig further to see if the rest of their paperwork and qualifications check out.
Obviously, they need to have a license. Every year, tons of people pass CPA exams—and that means they can pretty much do the job. Look for a CPA who’s committed to their field and to learning as much as they can by checking out what other accreditations they earned after the exam, such as an Accredited in Business Valuation (ABV) credential or membership in they National Association of Tax Professionals or the National Association of Enrolled Agents.
Offers strong referrals and reviews
If you’ve been working in real estate for some time, you probably have great connections who can refer you to a few CPA options. Aside from other real estate agents, you may know bankers or attorneys who may also be able to help. If that’s not the case, there are plenty of online resources like directories, Google reviews, and Facebook groups you can use to make the right choice.
But even with these options, don’t just take other people’s word for how good a CPA is. What’s right for one person may not be what’s best for you. It’s up to you to make the best choice for your business.
Should your CPA invest in real estate, too?
It may not be important that your CPA invest in real estate unless that’s important to you, personally. What’s most important is that your CPA understands real estate and that they have experience with real estate clients.
If your CPA doesn’t have recent history with real estate clients, chances are that they aren’t up to date on IRS regulations and don’t know how to handle troublesome ones. They have no real estate knowledge to use for your benefit.
And if they do invest in real estate, that’s fine—but if they don’t have the in-depth accounting-level knowledge you need, their investments don’t mean much overall.
Questions to ask before hiring a CPA
Keep in mind that when you hire a CPA, it’s all about how they will help your business long-term. Asking the right questions will help you understand how they can help your business.
Here are some great questions to consider:
- Do you have a PTIN (preparer tax identification number)? Every tax preparer should have a PTIN and should furnish this information to you. If they refuse to do so, seek out a different tax preparer.
- What is your tax background? This question allows you to understand the risk in hiring the preparer. Are they new to the game? Do they have corporate experiences? Have they assisted clients in your trade or business?
- What kinds of clients do you work with? Hopefully, they say real estate investors. If not, move on. You shouldn’t have to teach the right CPA about your business.
- Are you available year-round? As a business owner, you want to hire an advisor, not just a tax preparation service.
- What’s your experience with the IRS? Have they defended clients in an audit or provided written correspondence to substantiate the basis of a client’s tax position?
- Who will be performing the work? You want the CPA’s expertise—so you will also want to know if a junior accountant will be assigned to your account.
- Are you financially conservative or more aggressive? Can you give me an example? Answer this for yourself, then see if the CPA matches your risk tolerance. If these don’t match up well, it could lead to unnecessary disagreements down the line.
- How do you bill for your services? Does the CPA charge a fixed rate or is it hourly? Are they transparent? Will they provide you with timesheets?
- Do you use tax software? Using software mitigates risk for errors. Hopefully, your CPA does—and is up-to-date on the latest software options, so you’re always getting your best possible results.
- Do you offer an initial consultation, or is there a charge? Reputable firms will provide you with a free consultation.
- What records will you need from me? You will want the CPA to send you a tax organizer. Otherwise, there will be a lot of time wasted in back and forth communications.
- Can I file electronically? Reputable firms have the ability to file electronically.
Don’t overcomplicate your business my attempting to handle your taxes yourself. Instead, hire a competent CPA who can help you achieve your real estate investing goals.