If you have a commercial real estate property portfolio it’s very important to have a good CPA. Why? Because very often if you have waited too long to hire someone who is competent, then before you know it you can end up owing the IRS thousands of dollars. Sometimes it can even be tens of thousands of dollars of back taxes, interest and penalties. Which is not a place anyone wants to be. However there is also the other side, when you can end up spending a fortune on services, which you don’t even need when it comes to your property portfolio.
So how do you make sure you have a CPA who can actually give you what you need? Many commercial real estate owners think it can be expensive to hire a CPA. However, you can reap the benefits in the long run when it comes to your finances and your property portfolio. A CPA can become a trusted advisor, and they can be much more than just a tax preparer. This is where you can really see their value. A good CPA can enable you to run a much more efficient business and help you be a lot more organized. This will mean you make better business decisions, because you can use them to help you with astute financial analysis. And this will ultimately lead to you saving money. Here is our guide on what to look for when hiring a CPA, and how to make sure they are right for you and your commercial real estate investments.
When Is The Right Time To Hire a CPA?
The first thing to do is a cost and benefit analysis of your income. Consider these questions:
*Does the majority of your income come from a W-2 job?
*Do you have only a few investments, which are generating interest?
*Are you able to keep up to tax regulations that impact your business?
If you answered yes to these questions, a CPA may not be a good fit.
However, if you have a low tolerance for risk with your income, you may consider hiring a CPA regardless of how simple your tax situation might be. You can even learn about tax preparation and save a few hundred dollars in the process using Turbotax or Quickbooks. However when you buy, flip or wholesale property, it can make things more complex. It means you need to keep track of your income, your expenses and also using an accounting method.
You also need to calculate basis and depreciation. And you need to know about 1099s, and what can and cannot be deducted. If you don’t get this right, you can face an audit. Unfortunately real estate investors and business owners can often be subjected to spurious reporting. If you have a professional looking at your taxes for you, they can also act as a business advisor. If you are smart, then you get your CPA in place to look at your past taxes.Then they can get you prepared for your tax return. Do this before the audit happens. Then you don’t have to pay thousands in professional services and fees.
How To Find a CPA Who Fits Your Needs
The best thing you can do is use a CPA who is already advising in your business. Who is used to working with people who have commercial real estate. Because a CPA has this designation, it doesn’t mean they know how to look at taxes. Or they have competence in the area of tax, accounting, and financial planning. Many CPA’s have never even prepared tax returns, even for themselves. If a CPA works at large accounting firm, they may have little experience of working on an audit. They might just look at the accounts receivable account. Or they will be only looking at whether or not invoices were appropriately approved. A CPA you hire and take advice from, must be actively practicing in the area in which you need to gain advice and support. Referrals are one of the best ways to get a CPA who will work for you and your business. At Coastline Equity we have a trusted team of CPA’s we work with.
If you are a real estate business owner, then ask another real estate business owner for a referral. You should also consider local vs. non-local CPA’s. A local CPA means you can physically shake their hand, get to know them better and hand your documents over personally. However, it may mean that there are only a few in your area, which specialize in real estate investors.
If you work with a CPA who is out of your local area means you can choose from a much wider pool of people. You can use a Google search to find someone who is more tailored to your needs. And you can always use Skype to get a ‘face-to-face’ meeting. Non-local CPA’s also focus on communication and client service. This means they can be seen as more responsive. Technology can make it a lot easier to meet with clients who are hundreds or thousands of miles away.
Is it Important My CPA Has Invested In Real Estate?
While it isn’t necessary your CPA has invested in real estate, they should have a client portfolio, which means they have an understanding of how it works. While not everyone is good at commercial real estate, if your CPA has many clients who are real estate investors, then they will know the latest IRS regulations. They will know which tax loopholes you can use. Your CPA is more beneficial to you if they have a good competency on the issues surrounding real estate rather than having invested in it.
What You Should Ask Your CPA Before Hiring Them
*Do you have a preparer tax identification number?
Every tax preparer should have a PTIN and they should be able to tell you that. If they won’t give you this information, move on to someone else.
*Do you offer a free consultation?
A reputable firm will be more than happy to give you a free consultation
*Is your approach more conservative or more aggressive?
Then ask for an example.You need to make a judgment on whether their approach fits you. Then see how their example measures up.
*How do you bill for your services?
It is always good to know if it’s a fixed rate vs. an hourly rate. Ask if you are able to see how they bill for this and will they show you time sheets.
*What is your tax background?
By getting a good scope of their experience you can get a further understanding of what they can and can’t do.
*Are you available year round?
Tax needs to be worked on all year. And you are looking for an advisor, as well as a tax preparation service.
*Do you have experience with the IRS and if so what is it?
It is much better if your CPA has worked on an audit, as they know what to expect. If they have defended a client, and have written confirmation of this, you can see they will be able to work on an audit efficiently if it happens for you.
*Who will be working on my account?
Many CPA’s have a team. Ask them who will be working on your material. If there is a junior on your account you need to know who will be assigned.
*What kinds of clients do you work with?
If they don’t respond commercial real estate, then look at hiring someone else.
*Do you use tax software?
Software can help you avoid errors – and it’s exactly the same for your CPA.
*What records will you need from me?
You need to get a tax organizer from your CPA. If you don’t this can result in a lot of issues with communications going back and forth.
*Is if possible to file electronically?
A reputable firm has no issue with using electronic filing
*If I get audited, how will you help me?
If this happens to you, you need to know your CPA’s process.
If you follow these guidelines, there is no reason why you can’t choose the perfect CPA for you and your commercial real estate portfolio.
If you liked this blog post, then check out our other post on why you should invest in multifamily property. And don’t forget to check us out on LinkedIn and Facebook.