Do I need a Real Estate CPA? An Outsourced Accounting Guide for Real Estate Investors
In a market fraught with uncertainty, managing your financials can be complex and overwhelming, even for seasoned real estate investors. From navigating tax laws and maximizing deductions to making informed financial decisions, having a competent and experienced real estate accountant by your side can make a significant difference in the success of your real estate ventures. In this guide we’ll discuss the reasons for choosing a real estate CPA (Certified Public Accountant) and we’ll highlight the associated business benefits for real estate investors. If you've been considering making the switch from a local, general, or in-house accountant to a real estate-specific CPA, read on to learn why it can be a game-changer for your business.
In this guide, we’ll cover five ways real estate CPAs help real estate investors and owners optimize their business:
- Improve Accuracy
- Answer Questions
- Minimize Tax Liability
- Maximize Deductions
- Help Make Better Financial Decisions
Your tax return must be supported by evidence and comply with federal and state tax laws to avoid potential audits and penalties. A real estate CPA who specializes in working with real estate investors understands the intricacies of tax laws and regulations related to the real estate industry. They have the expertise to ensure that your tax return is accurate, reducing the risk of errors that could trigger audits or legal complications.
For example, let's say you own several rental properties and have been depreciating them on your tax returns. However, you recently learned that you missed out on claiming certain expenses that could have further reduced your taxable income. A real estate CPA can help review your past tax returns, identify any missed deductions, and file an amended return to rectify the situation. This could result in a substantial tax refund and help you recoup money that you may have overpaid in taxes in the past.
Tax forms and instructions from the IRS or state can be confusing, especially for real estate investors who may not have a background in accounting or tax law. A real estate CPA can provide valuable guidance and answers to your questions, helping you make informed decisions and avoid costly mistakes. They can explain complex tax concepts in simple terms, helping you understand how they apply to your specific situation.
For instance, you may have questions about how to properly classify expenses related to your real estate business, such as repairs vs. capital improvements, or how to report rental income from different types of properties. A real estate CPA can provide clear explanations and help you understand the tax implications of various decisions, ensuring that your business stays compliant with tax laws and regulations.
Minimize Tax Liability
Planning ahead is crucial when it comes to minimizing tax liability. Your CPA can help develop tax strategies that are unique to the real estate industry and specific to your situation, helping reduce taxable income or increase your deductions throughout the year. By working with a real estate CPA, you can implement tax-saving techniques that are compliant with tax laws and regulations, helping you optimize your tax position.
For example, your real estate CPA may help determine if you qualify for any tax credits or incentives related to real estate investing, such as energy-efficient property credits or historic rehabilitation credits, which can further reduce your tax burden.
Furthermore, a real estate CPA can provide proactive tax planning advice. They can help you understand the tax implications of different business decisions, such as acquiring a new property, monetizing a property, or structuring a real estate partnership. By consulting with a real estate CPA before making important financial decisions, you can minimize your tax liability and avoid potential tax pitfalls.
One of the significant advantages of working with a real estate CPA is their in-depth knowledge of the various tax deductions and credits available to real estate investors. A real estate CPA stays up-to-date with real estate-specific tax law and regulation changes and understands how they can impact your business and personal tax returns. They can help you navigate the maze of tax rules and regulations to identify and maximize all the deductions you are eligible for, such as depreciation, mortgage interest, property taxes, and repairs, as well as deductions that general accountants may be unaware of or may overlook, including 1031 exchanges and passive activity losses. By taking advantage of these deductions, you can significantly reduce your tax liability.
As an example, let's say you recently purchased a commercial property and incurred substantial renovation expenses. A general accountant may not be aware of the potential tax benefits of cost segregation, which involves segregating the costs of different components of the property for accelerated depreciation purposes. However, a real estate CPA can perform a cost segregation study and identify additional deductions that can significantly reduce your taxable income and lower your overall tax liability.
Help Make Better Financial Decisions
Running a successful real estate business requires sound financial decisions. A real estate CPA can provide valuable insights and guidance to help you make informed decisions that align with your financial goals.
For example, your CPA can provide financial statements and reports that give you a high-level overview of your business' financial health, including information on revenue, expenses, cash flow, and profitability. These financial reports help assess the performance of your real estate investments, identify areas that need improvement, and make strategic decisions to optimize your portfolio and business operations.
Moreover, your CPA can help you analyze your personal finances in the context of your real estate investments. They can provide you with advice on how to manage your personal finances in a way that complements your real estate portfolio, such as optimizing your personal tax situation, managing cash flow, and planning for retirement. By taking a holistic approach to your business and personal finances, your real estate CPA can help you make better financial decisions that support your long-term financial success.
As a real estate investor, working with a real estate CPA provides numerous benefits that can positively impact your business's financial performance and overall success. From improving accuracy and maximizing deductions to answering your tax-related questions, minimizing tax liability, and helping you make better financial decisions, a real estate CPA can be a valuable asset to your investment endeavors.
When choosing a real estate CPA, it's important to look for a CPA who specializes in real estate and has experience working with real estate investors of all sizes. They should be familiar with the unique tax laws and regulations that apply to real estate investing and stay updated with the latest changes in tax laws that may affect your investments. Additionally, make sure to choose a CPA who is accessible, responsive, and able to provide personalized guidance and support tailored to your specific real estate investment goals. Local and in-house accountants often provide acceptable availability, but often lack the real estate accounting experience of a specialist. Accountants like RealCount real estate CPAs for investors [link: investor page] combine decades of real estate accounting experience with on-demand access to a dedicated team.
In conclusion, partnering with a real estate CPA can help you navigate the complex world of real estate taxation, optimize your tax position, and help you make informed financial decisions that support your long-term financial success. If you're a real estate investor or owner with residential and commercial properties, consider working with a real estate CPA to take your business to the next level and achieve better returns on your investments.
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