6 Major Benefits Of Hiring A Real Estate CPA

While many new investors view the idea of hiring a real estate CPA or a tax professional as an unnecessary expense, smart investors know that having accounting experts on their team can pay dividends long-term.

A good real estate-certified public accountant (CPA) can help an investor structure their business and stay on top of income and expenses to minimize potential taxes and maximize ROI. 

Ultimately, leveraging a real estate CPA will allow you not only to remain compliant but also to reduce your tax burden each year. This can have a significant impact on your bottom line and will allow you to formulate long-term financial strategies and achieve your financial goals faster. 

In this article, we discuss the benefits of hiring a real estate CPA, along with scenarios for using a real estate CPA.

Key takeaways

• A CPA can do things that an accountant can’t. For example, representing an investor during an Internal Revenue Service (IRS) audit.
• Benefits for hiring a real estate CPA include minimizing potential tax liability and correctly structuring your real estate business
• A good real estate CPA can help investors navigate complex tax situations, such as a 1031 exchange, and remain compliant.
• CPAs can provide long-term investment and tax strategies.

Differentiating a Real Estate CPA from a Real Estate Accountant

While both real estate accountants and CPAs offer similar services, such as identifying tax benefits and reporting business transactions, the distinction lies in the depth of expertise and professional qualifications. 

A CPA is a higher professional designation that requires passing state education and licensing requirements and completing ongoing educational classes. As a rule of thumb, real estate CPAs are often more up-to-date on real estate tax strategies and changes to the tax code relating to property than an accountant with a 4-year degree.

Real estate CPAs can perform specific duties that an accountant legally can’t, such as preparing audited financial statements for investors in a limited liability company (LLC) or representing real estate investors in meetings with the IRS.

Related: Tax On Rental Income: How Much Tax Do You Owe?

Benefits of Hiring a Real Estate CPA

Real Estate CPAs are pivotal when it comes to navigating the complex landscape of real estate investments. They can help with optimizing tax strategies and safeguarding investors against financial uncertainties.

Tax-Efficient Entity Structuring

Real estate CPAs play a pivotal role in structuring operations and investments for tax efficiency. They prepare comprehensive financial reports encompassing operational costs, development expenses, and profits from various transactions, aiding investors in deriving realistic financial strategies. Moreover, a real estate CPA's insight into legal structures like LLCs or S corporations allows informed decisions in structuring real estate businesses and optimizing tax benefits.

Minimize Tax Liability

Specialized CPAs in real estate can help you minimize your tax obligations by identifying tax-saving opportunities. And the can help you eliminate or significantly reduce tax liabilities by ensuring you are maximizing your end-of-year tax deductions.

Year-Round Access to Financial Expertise

Engaging an accounting professional grants investors continuous access to expert advice, allowing them to navigate potential financial twists that could impact investments. Real estate CPAs stay updated on industry trends and tax changes, collaborating with investors to ensure creative financing and optimal investment choices based on nuanced knowledge of tax laws.

Protection from Market Volatility

Accounting advisors offers protection against sudden market shocks by providing an educated perspective on investment decisions. They oversee appraisal, capitalization activities, and asset evaluation. 

Networking and Prudent Leverage Use

A competent accountant will also help you develop your professional networks, introducing you to insurance agents, attorneys, and real estate agents, and streamlining the often complex process of team assembly. 

Additionally, they may assist in helping you leverage your existing equity effectively without over-exposing yourself to risk. 

Strategic Business Guidance and Long-Term Wealth Creation

Real estate CPAs can offer invaluable insights into long-term real estate cycles and changing trends, aiding investors in making objective purchase and sale decisions. Their role extends to advising on scaling and growing a real estate business strategically, contributing to wealth creation across generations with minimized tax liabilities, and ensuring a seamless transition of wealth.

How To When You Need A Real Estate CPA

Tools like Landlord Studio make it easier than ever to keep accurate and up-to-date books throughout the year. Our powerful financial management tools are designed for real estate investors to make tax preparation easy and our free resources share essential knowledge and tips. 

However, every portfolio is different and there is no substitute for advice from a qualified professional. A good real estate CPA will be able to assess your accounts and offer long-term tax strategies specific to your goals and portfolio.

Tax Compliance & Property Sales

Proficient real estate CPAs help investors comprehend their legal responsibilities and rights surrounding complex tax issues such as property sales, capital gains, 1031 exchanges, depreciation, and depreciation recapture. This guidance helps investors avoid unforeseen complications during property transactions, safeguarding against unpleasant surprises.

If you have any uncertainties or are navigating one of these more complex scenarios for the first time it’s best to explore options with a licensed professional who can help guide you through the process and ensure adherence to legal obligations.

REITs and Complex Investment Strategies

For investors dealing with real estate through trusts or similar vehicles, a real estate CPA provides tailored advice on sophisticated strategies like REITs or derivative investments. They outline potential tax implications, aiding investors in making informed decisions aligned with their financial goals.

Expense Categorization for Tax Optimization

Categorizing operating expenses can often be intricate and confusing. A consultation with a real estate CPA allows investors to identify opportunities to decrease taxable income by accurately categorizing expenses.

Selecting the Right Accountant for Your Real Estate Investment

There are plenty of real estate accountants and CPAs. A quick search for “real estate CPA” in your area will bring up dozens of results. The difficulty though is finding one whose methods and services align neatly with needs.

Ideally, you’re going to want to find a real estate tax specialist who is experienced with real estate investor clients and is aware of the best methods of both bookkeeping and strategic planning.

Recommendations for CPAs can come from various sources like Real Estate Investor Associations, local investors, friends, real estate agents, and attorneys. As the relationship with accounting professionals tends to be long-term, it's crucial to select a CPA that is aligned with your long-term success goals.

During the interview process, investors should delve into the CPA’s training, certifications, specialized areas in accounting and taxation, services offered, investment history, fee structures, tax strategies, references, software usage, and communication strategies. 

Additionally, you should ascertain the accountant's ability to assist in business structuring.

Questions to Ask When Choosing a Real Estate CPA

When opting for a real estate CPA, investors should consider professional certifications, services offered, specific real estate specializations (like residential versus commercial properties), additional licenses, such as real estate licenses, fee structures, tax strategies, and should ascertain the accountant's ability to assist in business structuring.

• Real Estate Focused: Do they have previous experience with the real estate investor clients.
• Tax Planning Services: Evaluate whether the CPA offers not only tax return preparation but also comprehensive tax planning strategies that align with long-term tax reduction objectives.
• Handling Taxes: Knowing who in the CPA's office will handle taxes, their experience level, and supervision to ensure a competent handling of tax matters.
• Availability and Communication: Assessing the CPA's availability throughout the year, especially beyond tax season, to ensure alignment with the year-round nature of real estate investing.
• Approach to Risk: Evaluating the CPA's risk appetite to match the your preferences, ensuring that their approach aligns with your conservative or aggressive strategies.
• Billing Structure: Understanding the fee structure, whether it's a flat rate or hourly, and what services are covered within that fee to avoid unexpected additional charges.

Final thoughts

A specialized real estate CPA becomes a pivotal asset, ensuring you stay ahead of tax code alterations, maximize deductions, and craft a tax-efficient real estate portfolio for sustained growth.

However, it's crucial not to sideline your bookkeeping skills once you’ve found a CPA to work with. Vigilance over expenses and receipts remains essential if you want to operate a profitable rental business. 

Leveraging property management and accounting software like Landlord Studio streamlines tasks for both you and your accountant. Landlord Studio pairs powerful accounting tools with professional accountant-approved reports that you can easily share with your real estate CPA. 

Armed with the right tools and an accounting expert you’ll be ready to make the most of the available real estate tax strategies, overcome risks, and achieve your investment goals faster.

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