All Forum Posts by: Account Closed

be sure to find an accountant who is willing to grow with you, and is not too high priced fee-wise. Not too low either, you don't want to go with someone who is just focused on price as this is a quality of a not-so-great accountant. Accountants are in such demand, that the best are not even accepting clients half the time.

The other problem I see often with accountants on here is that they specialize in larger investors, and have really high prices when you as a smaller investor do not need all the bells and whistles.

Another thing I see is folks thinking they need to have a tax professional in their state. We as a firm have investors working with us who have rental properties all over the US big and small.

Finding a real estate-focused tax professional and one who can help with advisory and grow with you would be my suggestion to focus your efforts on finding. Best of luck in your search!

0 Votes

Worcester, Massachusetts

Quote from @Jana Cain:

@Kevin S. I agree with @Kory Reynolds - you want to work with a professional who fundamentally understands your business, whatever that is. Yes, there is nuance to real estate, just like there is nuance to any business. You want your accountant (tax preparer and/or bookkeeper) to understand how to classify your business items - fundamentally, there are just 5 categories of entries (asset, liability, equity, income, expense) and the transaction is booked as a debit or credit to the appropriate category. So, for exampe, if you're in the business of selling a product, be it houses, horses, or Halloween costumes, your chosen pro needs to where to stick your inventory, and how to track it. They don't need to be in that business themselves to understand how to do the accounting.

As for whether or not you can use the same accountant for all of your needs, that is harder to answer. A multi-accountant firm might be more likely to have practitioners that specialize in your various areas of business, whereas a solo shop may be much more limited. For example, I specialize in just a few industries (RE being the bulk of my clients), but I don't enjoy cost accounting, or dealing with high turnover inventory, so I don't have any retail/ecommerce or manufacturing clients. I know of accountants that do specialize in these areas, but they don't touch real estate at all. So do some investors have multiple accountants? Yes, some do. It wouldn't be all that strange for someone to have a bookkeeper for their real estate business, a bookkeeper for their non-real estate business, and a tax preparer who takes the reports from the bookkeepers and files the return(s). All three could be part of the same firm, or they could each work solo in their own business focused on those areas.

The benefit of having one person (or one firm) handling everything is consistency in the work product. Plus you know your tax preparer will find the bookkeeping acceptable (it's not uncommon for the tax pro to have preferences as to how they like to see information presented). The cons are it could be pricier to have one person/firm do it all - a qualified tax preparer likely charges more for bookkeeping than a standalone bookkeeper. I have a REI bookkeeping client that I don't prepare the returns for, but I work closely with their chosen firm to make sure the financial statements look they way they want them to (and I also explain to them my preferences for reporting, so they understand why I categorize certain items in certain ways). Their CPA firm's rates are much higher than my bookkeeping rates (they're a firm with staff, I'm a solo practitioner), so for this particular client it makes financial sense for them to have an accounting "team" vs running everything through just the CPA firm.

My recommendation is to evaluate your existing needs and how you expect them to change over time, and then do your research accordingly.

Agree with this Jana! Thank you for replying

0 Votes

Quote from @Kevin S.:

Thanks for your different input. So I gather couple of things from your response. Try to get a local accountant and that accountant doesn't have to own RE to offer solution.

Do accountants geared towards RE investors even want to handle non RE accounting needs? Zach said to keep only one accountant. I wonder what other investors here who have small businesses and invest in RE keep one or two accountants. Awaiting more responses.

So my firm specializes in working with folks who own small businesses who want to invest in real estate funny enough. The reason we like that is because it allows us to narrow in and focus on a few core tax strategies that we feel are solid and proven ways of building wealth, so much so we do them ourselves.

The reason I suggest only one accountant, and ideally the one specialized in your "area of investing" Is because they will be the most up-to-date and informed on policy around that area, and best suited to serve you since they are doing it themselves.

There are so many tax law changes, and its impossible to keep up with every single one of them and do it well. Working with a specialized accountant in my view aligns things perfectly

0 Votes

Quote from @Kory Reynolds:

Quote from @Kevin S.:

Does the 'specialized accountant' have to be within the state due to applicable RE state laws (if any) as it pertains to each state?

Do clients with 'regular' accountants now retain 2 accountants or switch regular accounting to the specialized accountant(under one roof)? Why and why not? Pros and cons. Challenges and benefits of each option.

Investors and accountants, please chip in. Thanks.

I'll offer a different opinion here - on the first question, consider the rules of your local jurisdiction. If you live in a state with highly specialized or locality rules - NY, OH, NH, it is worth either considering local, or at least firm that has on board expertise within your jurisdiction. 75% of the time when I work with a NH investor that was previously working with an out of state accountant...they've made errors (in some cases costly ones) on the NH business tax returns. Many states are not that complicated though.

Choose an accountant that focuses in your area of specialty, preferably choose a firm that can address most of your needs and where you want to grow. If one doesn't have dynamic needs, then just focus on that specialty. If you expect to have a more dynamic need - say you'll be investing nation wide and will need to address State and Local Tax issues in a number of different jurisdictions, or you'll be buying a property in the Caribbean, or you want tax advice on your estate/trust/gift planning, or now you are hiring employees and you want to ensure you are getting help when it comes to tax considerations of your employee benefit plans, or whatever avenue you go - maybe a Regional firm or one specialized in real estate all over will be your best fit over the more mom and pop practitioner.

I always disagree with needing to work with an accountant that invests. It might give you peace of mind as a newer / smaller investor, but in the end you have a problem you want to solve (taxes and being compliant), and if your tax guys owns a duplex will have no impact on his ability to address those issues. If you have cancer...you don't care if your oncologist has had cancer, you just care if he is the best to solve your problem. Your CPA/EA isn't selling you a dream of real estate investment that they somehow don't believe in since they don't own any - they are selling you a solution to your problem.

(I'm biased, I have no direct ownership in real estate outside of my own home,)

Great points here!

0 Votes

Hey @Kevin S.,

The specialized accountant (lets just stick with real estate for this convo) will likely not be your local accountant. The best accountants in this space work all over the US, since their clients are investing all over the US.

To answer your second question: You only need one accountant, so you might as well work with the one who focuses in the investment strategy you're doing and ideally does it themselves. Its best to be aligned in that way, and working with anyone else is a big disadvantage as rules quickly become stale.

0 Votes

As your income and real estate portfolio grow, reaching the $150,000 marks in my opinion the beginning of your financial journey into real estate. It's at this juncture where you likely have around 20-40k saved up, and you’re ready to buy that first rental or maybe you even already have one. Hiring a real estate-focused accountant for tax preparation and advisory services becomes not just beneficial but crucial here. Up until this point, when your income was lower and you were following a more “vanilla” financial strategy, the need for a specialized accountant might not have been apparent. However, as you move into a higher income bracket and acquire rental property, the complexities of tax planning and financial strategy escalate, making the expertise of a skilled accountant invaluable.

A real estate-focused accountant brings a nuanced understanding of the tax implications and intricacies specific to the real estate industry. Beyond preparing your taxes, they can provide insightful advice on optimizing your financial structure, identifying potential deductions, and strategizing for future investments. This phase in your financial journey is akin to setting up the foundation of a building; a solid foundation ensures stability and growth. The same principle applies to your finances, and a knowledgeable accountant can be the architect of that foundation. Moreover, by collaborating with an accountant who works with investors at various stages of their journey, you not only gain access to their expertise but also tap into a wealth of collective knowledge. It's like having free mentoring embedded in your financial team, as they share insights from working with individuals both earlier and farther along in their real estate endeavors. This symbiotic relationship can prove invaluable as you navigate the complexities of real estate taxation and financial planning, ultimately propelling you towards greater financial success. This is why when people ask “Should I get an accountant” on the bigger pockets forum I usually answer 9/10 times yes. Often times people are already far along their journey and have made mistakes they could have avoided simply by working with the right tax pro.

0 Votes

Hey @Troy Welch,

Given we have already chatted via direct message, i am leaving this for those who fall on this post in the same situation:

The other problem I see often with accountants on here is that they specialize in larger investors, and have really high prices when you as a smaller investor do not need all the bells and whistles.

Another thing I see is folks thinking they need to have a tax professional in their state. We as a firm have investors working with us who have rental properties all over the US big and small.

Finding a real estate-focused tax professional and one who can help with advisory and grow with you would be my suggestion to focus your efforts on finding. Best of luck in your search!

1 Vote

@Basit Siddiqi is correct, I would just like to add that these forms are:

Form 8938: statement of specified foreign financial assets ( bank accounts)

Form 5471: for reporting interest in foreign corporations ( depending on how your holding your airbnb this maybe important)

I would highly suggest having an accountant do it for you!

0 Votes

Quote from @January Johnson:

If it's allowed, it's not a "loophole". ; )

Depends on how you view it I suppose :P

Since we are (in many people's views) "gaming" the material participation test laws here, I would consider it a loophole. On the contrary, something like real estate professional status is NOT a loophole, since its directly mentioned in the tax law and is heavily litigated.

0 Votes

All Forum Posts by: Account Closed

Account Closed has started 22 posts and replied 1212 times.

Post: STR taxes with material participation on a previous primary residence

Post: 2024 Tax Reccomendations

Post: Do I need a CPA? ANSWER INSIDE

Post: Do I need a CPA? ANSWER INSIDE

Post: Do I need a CPA? ANSWER INSIDE

Post: Do I need a CPA? ANSWER INSIDE

Post: Do I need a CPA? ANSWER INSIDE

Post: CPA, Tax Advisor, Wealth Planner ????

Post: Handling Taxes with International Airbnbs

Post: Tax considerations you MAY NOT KNOW about short term rentals