When to start using a CPA?
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
When to start using a CPA?
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
14yAny time you have income coming from business(es) and/or other investment assets you should be using a CPA (in my opinion).
And yes, using a CPA for tax planning is probably more important than using him for tax preparation (again, in my opinion).
If you don't feel like you're CPA is worth what you're paying him, you need to find a new CPA. A good CPA will save you money, not cost you money.
35 Replies
- Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes14y
I would recommend using a CPA...we started immediately to not only ensure we did not make any crucial errors, but that we minimized our taxes paid. You should be able to find a good CPA that will review your books and prepare your taxes for a price that will be well worth it in my opinion. I am sure investors in your area can chime in with recommendations and going rates.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes14y
Any time you have income coming from business(es) and/or other investment assets you should be using a CPA (in my opinion).
And yes, using a CPA for tax planning is probably more important than using him for tax preparation (again, in my opinion).
If you don't feel like you're CPA is worth what you're paying him, you need to find a new CPA. A good CPA will save you money, not cost you money.
- Real Estate Investor · New Orleans, LA · Member since 2011 · 54 posts · 13 votes14y
Bienes,
I'm like you for about 5 years I've done my own taxes with Turbo Tax. However, I'm onto my 4 rental unity and decided to get a CPA this year.
Reasons for this:
-I asked my boss, that is a developer and multi business owner, what do you recommend a good lawyer/cpa? He said "CPA because they deal with your money and tax structure. A good one will have lawyers they work with to structure your business in the most tax beneficial way. Trust me I'm made some business decisions before consulting my CPA and ended up paying more in taxes when real I shouldn't have."- Pay people what they are good at. A CPA is good at taxes, I'm getting better at finding RE deals. The less time I spend doing taxes the more time I can spend with the family or looking on the internet for deals.
-Some of my rentals I may not hold long term. Would like someone to give me my best options when selling as it pertains to tax strategy.
-I plan on moving into not just rentals but also wholesaling/flipping maybe 1 or 3 houses a year.
- I can call my CPA for advice before I make decisions to know the tax implications.
- Orlando, FL · Member since 2009 · 2k+ posts · 282 votes14y
Originally posted by Mickey Harrison:
Bienes,I'm like you for about 5 years I've done my own taxes with Turbo Tax. However, I'm onto my 4 rental unity and decided to get a CPA this year.
Reasons for this:
-I asked my boss, that is a developer and multi business owner, what do you recommend a good lawyer/cpa? He said "CPA because they deal with your money and tax structure. A good one will have lawyers they work with to structure your business in the most tax beneficial way. Trust me I'm made some business decisions before consulting my CPA and ended up paying more in taxes when real I shouldn't have."- Pay people what they are good at. A CPA is good at taxes, I'm getting better at finding RE deals. The less time I spend doing taxes the more time I can spend with the family or looking on the internet for deals.
-Some of my rentals I may not hold long term. Would like someone to give me my best options when selling as it pertains to tax strategy.
-I plan on moving into not just rentals but also wholesaling/flipping maybe 1 or 3 houses a year.
- I can call my CPA for advice before I make decisions to know the tax implications.
Mickey it sounds like you and I are at the same stage--I have 3 rentals right now and am looking for a fourth.
My concern was wasting money, since I had to go through a couple of different lawyers first before finding one who is knowledgeable in business law, doesn't have an abrasive personality, etc.. I would rather not repeat that process with the CPA. Since I like the attorney I have now I'm going to call the CPA he recommended and see what he charges.
My question about the tax return was due to the fact that I've already transcribed all of my rental receipts from 2011 into Excel and flagged whether they are repairs, improvements, or basis. I don't want to pay someone a lot of money to do the tax return when I've already done 90% of the work.
- Accountant · Member since 2008 · 119 posts · 52 votes14y
I'm an accountant (will be a CPA by summer) at a CPA firm and I'll tell you that if you are in business, especially real estate, a CPA is worth the fees. Taxation, Basis tracking, etc all get confusing for the non-accounting types.
The thing about business taxes is you may think you are doing everything right and not hear back from the IRS, but you could be doing things completely wrong for years and get stung at the end by surprise. It's more of a preventative measure really. Also, tax planning involves an entire look at your financial picture and goals so it's really important to have someone who knows the long and short term impacts of decisions at your side.
Don't forget our fees are also deductible as business expenses the following year.
If your CPA doesn't have the heart of a teacher and isn't willing to sit down and explain things to you in plain English then move to the one that will. Good luck!
- King Of Prussia, PA · Member since 2012 · 13 posts · 1 vote14y
A CPA would be a great idea--you should definitely look into it more and go from there. Make sure you find a CPA that is good. You need to make sure you are happy with them and feel they are worth it, because if not, it will be a waste of money.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
One value of using a CPA, that has not been mentioned above, is when you go to seek financing. The lender will have much greater faith in your accounting practices when they see that you have employed a CPA.
- 14ySteven Hamilton IIPro MemberAccountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
Bienes,
A CPA, and EA and an attorney are all in a room.......(sounds like the start of a bad joke).
I am an Enrolled Agent, I represent people before the IRS and this is the preferred designation by the IRS for anyone who represents taxpayers before the IRS.
It has been referenced several times here to be sure about your CPA's qualifications. There are many CPAs who do not do income taxes; however, It is more cost effective typically to go to an Enrolled Agent. Just be sure whoever you choose to use is qualified and has experience in your situation.
The term CPA is a fairly overrated one in my opinion. I've come across some CPAs who are definitely not very good at what they do. I've also seen some who are great. CPAs are not required to take continuing education in income tax after they pass the exam. There are MANY who do as their tax business is heavy; however, some of the best tax preparers and accountants do not have the CPA designation.
The biggest factor is to find an ACCOUNTANT (doesn't have to be a CPA) who is qualified to handle your situation.
There are three types of people who can represent you before the IRS: Enrolled Agents(who are licensed by the department of the treasury), CPAs and Attorneys.
I am not trashing CPAs, I am simply stating to make sure you check qualifications on EVERYONE you do business with. I am working on becoming a CPA at the moment because the designation is the first thought on taxes.
Summary: Do you due diligence. CPAs are not required to take education in income tax(many do); an EA takes 24 hours per year and is licensed in tax; Attorneys do not take continuing ed in taxation.
My Suggestion: Go see a CPA for your books, an EA for tax advice/planning, and a lawyer for legal advice. Preferably get all three in the same room.
Here are some links to other posts an a list of questions to ask by J Scott.http://www.biggerpockets.com/forums/51/topics/63679
http://www.biggerpockets.com/renewsblog/2010/05/19/finding-your-cpa-accountant-real-estate-business/-Steven the Tax Guy
Your guide to IRS laws, rules and regulations.
Licensed by the Department of Treasury in taxation.
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes14y
I remember early in my career when I was attempting to find a knowledgeable accountant. When I was interviewing accountants I would always ask one simple question-what did you pay last year in income taxes? If they refused to answer, I felt they were embarrassed with the amount they had paid. If they gave me the amount that they paid and it was more than what I had paid why on earth would I want them to do my taxes? I was quite confident I was earning more than they were so their taxes should of been less.
I do agree with previous posters that you definitely need an accountant. Unfortunately, in my opinion, most of them do not understand real estate. Rich
- Real Estate Investor · New Orleans, LA · Member since 2011 · 54 posts · 13 votes14y
Yes one thing I forgot to add.. make sure whom ever you pick is familiar with doing taxes for Real Estate Investors. I happened to get a referral from someone at my local REIA same goes for the RE attorney I'm starting to use. I basically, asked him a few questions about clients he has (does he prepare for RE investors). I'm also familiar with some basic tax strategies that apply to RE so when I mentioned them and he knew what I was talking about, I knew I was sitting in the right office. As strange as it might sound, a simple question that I asked 2 other CPA's in my area was about 1041 exchanges. They knew what I was talking about but didn't seem confident in the answers they were giving me. I passed on them.
Yes, it will hurt some when you feel you could have done he same work for less or in your case did 90%. However, I feel I'm building a business and I need a strong team to back me.
"“Talent wins games, but teamwork and intelligence wins "championships.” - Michael Jordan - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
I am on the hunt for a great CPA.One who understands real estate investing and planning.
Preferably in Cherokee county Georgia or surrounding counties.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
Originally posted by Mickey Harrison:
... As strange as it might sound, a simple question that I asked 2 other CPA's in my area was about 1041 exchanges. They knew what I was talking about but didn't seem confident in the answers they were giving me. I passed on them.
...I just completed a 1031 exchange - but I have never heard of a 1041 exchange prior to this post above ...
- 14ySteven Hamilton IIPro MemberAccountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
1041 is the exchange of property between spouses. Here is the IRC
(a) General rule
No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)—
(1) a spouse, or
(2) a former spouse, but only if the transfer is incident to the divorce.
(b) Transfer treated as gift; transferee has transferor’s basis
In the case of any transfer of property described in subsection (a)—
(1) for purposes of this subtitle, the property shall be treated as acquired by the transferee by gift, and
(2) the basis of the transferee in the property shall be the adjusted basis of the transferor.
(c) Incident to divorce
For purposes of subsection (a)(2), a transfer of property is incident to the divorce if such transfer—
(1) occurs within 1 year after the date on which the marriage ceases, or
(2) is related to the cessation of the marriage.
(d) Special rule where spouse is nonresident alien
Subsection (a) shall not apply if the spouse (or former spouse) of the individual making the transfer is a nonresident alien.
(e) Transfers in trust where liability exceeds basis
Subsection (a) shall not apply to the transfer of property in trust to the extent that—
(1) the sum of the amount of the liabilities assumed, plus the amount of the liabilities to which the property is subject, exceeds
(2) the total of the adjusted basis of the property transferred.
Proper adjustment shall be made under subsection (b) in the basis of the transferee in such property to take into account gain recognized by reason of the preceding sentence.-Steven The Tax Guy
Your Guide to the IRS laws, rules and regulations
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes14y
After a few rentals I would say it is time for a CPA. I call my CPA several times a week now that we are doing more business and I really couldn't function properly without him. He knows our tax situation intimately and all of the crazy things real estate investors like to do or have to deal with.
I consider my CPA my most important member of my small team. We do very well on our taxes each year and he pays for himself many times over.
- Accountant · Member since 2008 · 119 posts · 52 votes14y
Originally posted by Steven Hamilton II:
Bienes,A CPA, and EA and an attorney are all in a room.......(sounds like the start of a bad joke).
I am an Enrolled Agent, I represent people before the IRS and this is the preferred designation by the IRS for anyone who represents taxpayers before the IRS.
It has been referenced several times here to be sure about your CPA's qualifications. There are many CPAs who do not do income taxes; however, It is more cost effective typically to go to an Enrolled Agent. Just be sure whoever you choose to use is qualified and has experience in your situation.
The term CPA is a fairly overrated one in my opinion. I've come across some CPAs who are definitely not very good at what they do. I've also seen some who are great. CPAs are not required to take continuing education in income tax after they pass the exam. There are MANY who do as their tax business is heavy; however, some of the best tax preparers and accountants do not have the CPA designation.
The biggest factor is to find an ACCOUNTANT (doesn't have to be a CPA) who is qualified to handle your situation.
There are three types of people who can represent you before the IRS: Enrolled Agents(who are licensed by the department of the treasury), CPAs and Attorneys.
I am not trashing CPAs, I am simply stating to make sure you check qualifications on EVERYONE you do business with. I am working on becoming a CPA at the moment because the designation is the first thought on taxes.
Summary: Do you due diligence. CPAs are not required to take education in income tax(many do); an EA takes 24 hours per year and is licensed in tax; Attorneys do not take continuing ed in taxation.
My Suggestion: Go see a CPA for your books, an EA for tax advice/planning, and a lawyer for legal advice. Preferably get all three in the same room.
Here are some links to other posts an a list of questions to ask by J Scott.http://www.biggerpockets.com/forums/51/topics/63679
http://www.biggerpockets.com/renewsblog/2010/05/19/finding-your-cpa-accountant-real-estate-business/-Steven the Tax Guy
Your guide to IRS laws, rules and regulations.
Licensed by the Department of Treasury in taxation.
The truth in this post is that not all CPA's deal with taxes. Many do audits, compliance, compilations, controllers, are CFO's, are CEO's, or do all other aspects of business.
If you go to a smaller, local practice then chances are they aren't touching many audits and the lions share of their practice is taxes and tax planning. Some even merge practices with Tax Attorneys for the tax and estate dream team.
I'm not sure I would compare a CPA to an EA. They aren't even on the same level. A CPA can do all the work an EA can do, but an EA can't do half the work a CPA can do. Just look at the CPA exam vs the EA Exam.
That said, an EA would probably do just fine for tax preparation only, but I'd much rather have my financial statements and books compiled by a CPA and since he's already got that intimate knowledge of your financials he (or she) can do the tax work too.
I'm not bashing EA's, but I'm not sure comparing to a CPA is even in the same ballpark. Most EA's work for outfits like Jackson Hewitt, etc. (not bashing them if you use them)
If you're a real estate investor you will have long term tax planning issues, likely financial statement compilations for lenders, multiple partnership returns, and some pretty complicated books. If you can find a CPA who also invests in real estate himself, that's the ticket, IMO.
I'm a rookie Accountant, someone like Charles Perkins would be your best pick.
- Orlando, FL · Member since 2009 · 2k+ posts · 282 votes14y
Originally posted by Mickey Harrison:
Yes one thing I forgot to add.. make sure whom ever you pick is familiar with doing taxes for Real Estate Investors. I happened to get a referral from someone at my local REIA same goes for the RE attorney I'm starting to use. I basically, asked him a few questions about clients he has (does he prepare for RE investors). I'm also familiar with some basic tax strategies that apply to RE so when I mentioned them and he knew what I was talking about, I knew I was sitting in the right office. As strange as it might sound, a simple question that I asked 2 other CPA's in my area was about 1041 exchanges. They knew what I was talking about but didn't seem confident in the answers they were giving me. I passed on them.Yes, I am definitely going to make sure that the person understands RE and what I'm trying to accomplish.
- Accountant · Member since 2008 · 119 posts · 52 votes14y
Originally posted by Rich Weese:
I remember early in my career when I was attempting to find a knowledgeable accountant. When I was interviewing accountants I would always ask one simple question-what did you pay last year in income taxes? If they refused to answer, I felt they were embarrassed with the amount they had paid. If they gave me the amount that they paid and it was more than what I had paid why on earth would I want them to do my taxes? I was quite confident I was earning more than they were so their taxes should of been less.Pretty bold assumption there. Many of the CPA's in my area, especially the firm owners/partners, are involved in all sorts of other businesses. One in particular comes to mind that still works his tax practice but owns a few hotels and a couple storage units. From the outside he looks like the humble, frugal CPA with his older used pickup truck, but he's killing it under the radar. In my experience this seems to be the norm, rather than the exception. Most CPA's are frugal but heavy investors and not very flashy so it can be deceiving.
- Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes14y
I'm curious about this too. I am in my very humble beginnings with one rental that only grosses 550 / month. I acquired it only this past August. This will be my first year to file taxes with a rental. So, it doesn't seem like I need a CPA at this point, but I am concerned about depreciation and how that is affected if I use say, Turbo Tax this year and say, Jackson Hewitt next year and then a CPA the next year, etc. I want it to be as easy as possible, but what I can spend for that ease is obviously limited. I only spent 12K on the house and 12K on rehab and want to maximize the tax benefit of repairs vs. capital costs since there is really not much to depreciate if divided over 27.5 years!
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes14y
Originally posted by Daniel Payne:
Most CPA's are frugal but heavy investors and not very flashy so it can be deceiving.Let's not get carried away here. Most? Really?
CPAs are very good at certain things, but I would not say that MOST CPAs are heavy investors or even good investors. If they were they wouldn't be selling their time for dollars. They would be directing their capital to the best deals around.
The CEO of our fund is a CPA. I would say he is really the exception rather than the rule though.
- Accountant · Member since 2008 · 119 posts · 52 votes14y
Originally posted by Bryan Hancock:
Originally posted by Daniel Payne:
Most CPA's are frugal but heavy investors and not very flashy so it can be deceiving.Let's not get carried away here. Most? Really?
CPAs are very good at certain things, but I would not say that MOST CPAs are heavy investors or even good investors. If they were they wouldn't be selling their time for dollars. They would be directing their capital to the best deals around.
The CEO of our fund is a CPA. I would say he is really the exception rather than the rule though.
OK, maybe not "most." But it certainly isn't rare to find a CPA who makes a significant portion of their income off other businesses or investments. In my network of CPA's it's not uncommon and my network is of smaller CPA firm partners in the southeast. If we throw big 4 firms in the mix, the partners there can draw $1m+/year in salary and with frugality it's not hard to see how quickly they can build up serious investment funds.
My point was talking about tax liability and assuming the CPA's should be lower is not really an accurate criteria...
- 14ySteven Hamilton IIPro MemberAccountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
Originally posted by Daniel Payne:
Originally posted by Steven Hamilton II:
Bienes,I'm not bashing EA's, but I'm not sure comparing to a CPA is even in the same ballpark. Most EA's work for outfits like Jackson Hewitt, etc. (not bashing them if you use them)
If you're a real estate investor you will have long term tax planning issues, likely financial statement compilations for lenders, multiple partnership returns, and some pretty complicated books. If you can find a CPA who also invests in real estate himself, that's the ticket, IMO.
I'm a rookie Accountant, someone like Charles Perkins would be your best pick.
Daniel,
I am an Enrolled Agent and I must disagree with you entirely. You are definitely wrong about the Hewitt comment. Majority of EAs work for themselves and many CPAs who do tax work also acquire the EA designation. Also MOST of the bigger firms do not touch audits like the smaller firms do. You will also have better performance from a smaller firm. Too many CPAs are arrogant and do not have a good understanding of the tax laws.
To be an EA you must have an extensive knowledge of accounting and even more knowledge on tax and planning.
I will also restate my comment that some of the most competent accountants do not have the CPA designation.]
-Steven the Tax Guy
Your guide to IRS laws, rules and regulations
I am an enrolled agent and accountant. I represent many taxpayers before the IRS each year. I also work on well over a thousand tax returns per year. I do accounting, tax planning and preparation.
- Accountant · Member since 2008 · 119 posts · 52 votes14y
Originally posted by Steven Hamilton II:
Also MOST of the bigger firms do not touch audits like the smaller firms do. You will also have better performance from a smaller firm. Too many CPAs are arrogant and do not have a good understanding of the tax laws.I'm not sure we're in the same profession...A smaller CPA firm really doesn't have the staffing to handle audits as efficiently as larger firms. Most of the 1-2 CPA practices are tax only.
I do agree with you though that some of the most knowledgeable tax preparers don't have either designation.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes14y
It sounds to me like electrical engineers and technicians arguing over who is more competent to do technician work. To me the people doing the work EVERY day are the ones more qualified to do it. That doesn't mean that they are better at doing the more highly-qualified work that adds value. I'll take the people with more training in these scenarios. They obviously still need to be selected carefully though. There is a wide variance in expertise like there is with any profession.
My accountant just finished his CPA designation and I would bet he knows more about RE taxation than almost all CPAs out there. He also has the humility to do the research and ask other experts when he doesn't know something. I'll take those traits over the error prone "expert" that is billing too much to not seek out experts any day of the week.
- 14ySteven Hamilton IIPro MemberAccountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
Daniel,
I am referring to audits with the IRS not regular audits for large corporations. As I said; most big firms do a disservice to their clients and go into an audit with arrogance and don't work with the auditor.
Personally I'd rather a small firm who can focus on me rather than a large firm where I'm just a number.
Bryan,
How did you find your accountant? And how is he involved in real estate?
-Steven the Tax Guy
- Accountant · Member since 2008 · 119 posts · 52 votes14y
Bryan, you're spot on. The best trait is the ability to know what you don't know and willingness to learn from those who do! Being a rookie to the profession, one of the common answers I give is "I don't know all of the details off the top of my head, but I know someone who does!"
Great points!
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