As tax season approaches, real estate investors are gearing up. Should investors hire an accountant to handle their taxes? If so, are you better off hiring a certified public accountant that specifically focuses on real estate? Here are some things to consider when deciding whether you should hire a real estate CPA or tax professional.
CPAs can save you money on taxes
Probably the main reason real estate investors hire a tax professional or real estate CPA is to prevent them from paying more in taxes than what's required. Of course, if real estate investors know how to do this themselves, great. But unless we're also tax experts or accountants, most of us probably won't do as good a job as a tax professional can.
CPAs can run business reports for you
Tax professionals and real estate CPAs can help you budget, plan, and invest. They can prepare a financial report for you that includes all your business transactions. Your operating expenses, development costs, and profits can all be included in the report. These reports help you, along with your tax advisor, prepare a business strategy.
CPAs can often see market cycles
Your tax advisor can help you determine how to act during various market cycles, such as when to invest in new property and when to sell.
CPAs can help structure your business
Most investors start their business as a sole proprietorship, which isn't a legal entity. It just means you own a business, and it's the simplest way of doing business. For example, you can commingle your money with the business' money.
But the simplest way might not be the best way for you. You're personally responsible for business debts under a sole proprietorship, for example.
A tax professional or CPA can advise you on the best way to structure your real estate investment business. They consider all aspects of your business and can help you determine whether you should run it as a sole proprietorship, limited liability company (LLC), S corporation, or C corporation. Your tax professional can go over all those options and help you determine which works best for your business.
CPA vs. accountant: How to choose
If you're reading this, you're probably already thinking about hiring a professional to handle the financial aspects of your real estate business, such as finding and leveraging tax benefits and keeping records of your business transactions. An accountant should be able to do all this. But do you know the differences between an accountant and a certified public accountant (CPA)?
One way to look at the CPA versus accountant comparison is that all CPAs are accountants, but not all accountants are CPAs. A CPA holds a higher designation. An accountant is required to pass state education and licensing requirements before they can call themselves a CPA. They must also continue to take classes in order to keep their CPA status.
While accountants are allowed to prepare taxes and take care of bookkeeping, a CPA, especially one who specializes in real estate, might prove to be most advantageous overall for your business. A CPA, for example, should be up to date on the latest tax code regulations and how to leverage taxes to your advantage. CPAs are generally more knowledgeable because of the education and continuing education requirements they must adhere to.
The Millionacres bottom line
A good tax professional is someone you'll probably want to have working for you. They can protect you legally while helping ensure you make and hold on to as much of your money as possible.
Choosing the right accountant is important. You might want to interview several accountants and CPAs. Your real estate agent or attorney might be able to provide you with a good recommendation.