How to identify the right Tax Pro

Question

Hi all,

I haven't posted in a little while, our primary residence took a lot longer and a lot more money to fix up than we expected which delayed our real estate investing. My wife and I are based in LA/Long Beach CA. We are currently in the final stages of our first out of state flip in the Detroit area. We are hopeful that we will be going to market sometime in the next few weeks and closing in February. For our first flip we just did everything as individuals, we weren't sure if it would work for us or not so we did it as easy as possible. Assuming it goes the way we think, we should do pretty well with this first one. We are now in the process of deciding if we will continue to do this again, with the answer being most likely yes. This is a lot of setup to get to the question: I know that as we move forward with doing multiple flips a year out of state we will need to open an S-Corp/LLC in Michigan and register as a foreign agent in California. What we don't have is a strong CPA to do our business and our personal taxes moving forward with a more complicated tax structure. Our current guy does a decent job with just our W2 jobs but he doesn't have multi state experience. I am not sure where to start looking for someone who will understand our situation and works in both Michigan and California. I am not sure if we should be hiring someone in Michigan or someone in California, my thought is California so we can more easily physically meet with them if needed. Any suggestions and help to direct me in the right direction to start trying to identify our new tax pro would be very helpful. We will be going with our current guy this year as we have no flip profits from last year and will just be filing our normal W2s. Thank you!

Cameron Mertens · Answer

I just wanted to say thank you to everyone who reached out with information and advice, it is very helpful to get us pointed in the right direction!

Ashish Acharya · Answer

@Cameron Mertens,

Hey Cameron, first off congrats on getting your first flip close to market, that’s a huge milestone. Second, you came to the right spot! There are a lot of great professionals here who can help. I’d start by interviewing a few CPAs and seeing which one clicks before making a decision. Some people like to go local, but most CPAs who specialize in helping real estate investors can handle multi-state filings, so you don’t necessarily need someone in Michigan or California.

You’ll want a CPA who not only understands real estate investor strategies, entity structures like S-Corps or LLCs, and non-passive vs. passive income planning, but also keeps you up to date on ever-changing tax rules and educates you along the way, so you’re never in the dark and can make informed decisions without always paying for extra planning. Look for someone who can help you manage your flips efficiently, but even more importantly, has the expertise and bandwidth to plan for growth and keep your taxes optimized as your portfolio expands.

As for the S-Corp, Logan’s right. Given your W-2 jobs, the payroll tax savings might not be significant. You can revisit the S-Corp structure once your flipping business scales up, but for now, you’ll likely benefit more from working with a CPA who can help set up the right tax strategy for your current situation.

Good luck, and happy to connect!

Austin L. Smith · Answer

Its been a while since I have posted but you are getting great advice here.

Glad to see familiar faces in the tax professional space

Good luck at finding someone!

Cheers all!

Bill Hampton · Answer

@Cameron Mertens

I recommend finding a tax strategist/tax accountant who specializes in real estate taxation and is proactive instead of reactive when providing advice.

Working remotely with your accountant will expand your options. The best person for the job may not be local.

I would also recommend looking for an accountant who is able to work with you throughout the year. You want an accountant who can help you strategize and who is responsive when you want to know the consequences of the financial decisions you are making throughout the year.

Happy to answer any questions. Good luck.

Jason Malabute · Answer

Congrats on the flip. You’re smart to think about taxes early. I generally wouldn’t hold real estate in an S-corp because transferring property can get messy. Given the added complexity of multi-state issues, working with an accountant experienced in those areas is more important than where they’re physically located.

Neil Potts · Answer

Hi Cameron

Congratulations on what sounds like a successful first flip! It's not easy to get that right on your first project, so great job!

I am a realtor and investor based in Los Angeles, so would be happy to share a CPA recommendation with you, and of course provide you with whatever you need on the real estate side of things too.

Send me a message if you'd like more info, thanks!

Jason Malabute · Answer

Congrats on the flip, Cameron. It’s smart that you’re thinking through the tax impact now rather than waiting until it’s too late. I’d generally avoid holding real estate in an S-Corp since it can create unnecessary complications when it comes time to refinance, transfer, or sell the property. From what you’ve described, your situation is starting to get more complex, especially if multiple states are involved, and that’s usually the point where working with someone experienced in multi-state and real estate-specific tax issues really matters. Where the accountant is located is far less important than their ability to navigate the applicable state and local tax rules.

Logan Allec · Answer

Early congrats on your soon-to-be-crossing of the finish line on your first flip! My brother-in-law has had success with flipping out of state (Fort Wayne) -- I lent on several of his deals and it was cool to see how he's grown.If you both have W-2 jobs, an S corp may not make sense -- even with continued flip activity -- since the payroll tax savings may just not be there considering your day jobs.Although I'm (arguably) biased, here's my two cents. You will be filing a resident California return (Form 540) and you will be filing a Michigan return (Form MI-1040) as a nonresident with the Schedule NR. Therefore, you *probably* want a CPA who's familiar with filing California resident returns and non-California non-resident returns, i.e., a California CPA who has dealt with a lot of California real estate investors who invest / flip out of state.

Michael Plaks · Answer

I hope that I answered your exact question here:

https://www.biggerpockets.com/forums/51/topics/1222774-expla...

Please note that the BiggerPockets rules prohibit us tax professionals from offering you our services, sending you PMs or even saying "happy to answer your questions." You're supposed to initiate the conversation from your end.

Aaron Zimmerman · Answer

I'd recommend finding someone that's real estate focused. Most CPAs can file in all 50 states. I would absolutely consult with a CPA prior to making yourself an S Corp. This is a tax move with a lot of questions.

To open up the search, I'd look through the forums, reach out to a few people that you may jive with, and then interview them. You can also ask local investors too in FB groups or use the biggerpockets find a tax pro feature.