The Investor’s Complete Guide to Finding & Hiring a Perfect CPA Match

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Throughout my time running my own business and working for the Big 4, I have seen a variety of scenarios where clients waited too long hire a competent CPA and as a result owe the IRS thousands, sometimes tens of thousands in back taxes, interest and penalties. I have also seen the other side of the equation where clients with relatively easy tax situations are forking out hundreds of dollars for services when they don’t really need to.

Hiring a CPA may seem costly on the front end, but the benefits over the years will be well worth it. I tell my clients they are hiring a trusted advisor rather than simply a tax preparer, and that’s where the value comes in. They will help you run a more efficient and organized business, help you make important businesses decisions, provide financial analysis, and ultimately save you money.

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Knowing When to Hire a CPA

The answer stems from a cost/benefit analysis and depends on a variety of variables, most importantly your need for an advisor, your working knowledge of the tax code, and your risk tolerance. If you stay current on tax regulations that impact your business, then you may be okay flying solo. Conversely, if you have a low tolerance for risk, you may consider hiring a CPA regardless of how simple your tax situation may be.

As a general rule of thumb, if your main source of income is from a W-2 job and you own a few investments generating interest, dividends, and capital gains, you may be fine sticking with software like TurboTax. If this is the case, your tax situation is relatively simple, and I encourage you to give preparing your own taxes a try. You will learn about tax preparation and save a few hundred dollars in the process. This will benefit you in the future when you need to review the forms your professional has prepared, as you will have a better idea of what to look for, and you will know when something doesn’t make sense.

Related: How to Keep the IRS Out of Your Life This Tax Season

When you buy, flip, and/or wholesale property, your taxes become inherently more complicated. You must keep track of business income and expenses, you may need to define an accounting method, you need to calculate basis and depreciation, you need to know when to issue 1099s, and you need to know what can and cannot be deducted. Incorrectly reporting these items will place an audit target on your back. In my experience, real estate investors and business owners are more susceptible to erroneous reporting, and it is at this point that I would recommend hiring a professional to prepare your taxes and act as a business advisor. I’ve seen many clients incorrectly report income and expenses, take losses when they weren’t allowed to, and calculate depreciation incorrectly. These errors end up flowing through to future tax years, causing all future returns to be unsubstantiated, further exposing you, the business owner, to financial risk.

I have seen many successful business owners who are confident in their tax positions absolutely butcher their taxes. If they are smart, they hire a CPA earlier on to review past returns and provide advice. If they aren’t smart, they wait until an audit comes around to hire a CPA and end up paying thousands in professional services fees. Be smart.

Finding a CPA Who Fits Your Needs

My very best piece of advice is to never take advice from a CPA unless they actively practice in your trade or business. 

There are CPAs who have never prepared tax returns, even for themselves. Yet because they have the CPA designation, everyone assumes they are competent in the area of tax, accounting, and financial planning. Don’t make this mistake. CPAs working at large accounting firms, such as the Big 4, likely only see a very small slice of the pie. They could be on the audit team of a reputable Fortune 500 company but only be auditing the accounts receivable account, and even then they may only be looking at whether or not invoices were appropriately approved. Make sure the CPA you hire and subsequently take advice from is actively practicing in the area in which you need advice.

One of the best ways to find a reputable CPA is to ask for a referral. Prior to asking for a referral, consider who you are asking to refer you. For instance, if you are a real estate business owner, you will want to ask another real estate business owner for a referral. People asking for referrals in the BP Forums are a great example of what you should do.

Consider the pros and cons of local vs. non-local CPAs. A local CPA is great because as the client, you can physically shake their hands, give them your documents, and get a better feel for the CPA’s temperament. Limiting your search to local CPAs may not yield one that can meet your needs. The local CPA may be really good, but if only a small amount of his clients are real estate investors, he/she may not be the best fit.

Working with a non-local CPA also has pros and cons. On the positive side there is a larger pool of CPAs to choose from. More than likely, a Google search will direct you to plenty of firms specializing in real estate and possessing the ability to meet your needs. On the negative side, holding a face-to-face meeting may cost you an arm and a leg in airline fares. Many non-local CPAs utilize Skype and other meeting tools to conduct their meetings. Non-local CPAs place an emphasis on communication and client service and you may find they are more responsive then the local guy.

As an investor, you should be demanding the best possible service to fit your particular needs and that may not come from the local guy. Technology makes it increasingly easier to meet with clients who are hundreds or thousands of miles away and still easily meet their needs. If you feel comfortable seeking out a non-local CPA, I’d recommend giving it a shot.

Should My CPA Invest in Real Estate Too?

This is an interesting question that I see debated in the forums. As a CPA who invests in real estate, I don’t think it is imperative that your professional also invests in real estate. But I do think the majority of the professional’s client base should consist of real estate investors.

My reasoning for this is simple: Just because you invest in real estate doesn’t mean you know what you are doing. Would you invest with someone who is earning a 1% ROI? Unlikely.

If the majority of the professional’s client base is made up of real estate investors, there is a good chance that professional is up to date on the IRS regulations and knows which tax loopholes are ripe for exploiting. A professional’s competency on the issues surrounding real estate is a more important qualification than simply investing in real estate.

Related: 3 Highly Effective Business Professionals to Add to Your Real Estate Team

Questions to Ask a Potential CPA Prior to Hiring Them

  • Do you have a PTIN (preparer tax identification number)? Every tax preparer should have a PTIN and should furnish this information to you. If they refuse to do so, seek out a different tax preparer.
  • What is your tax background? This question allows you to understand the risk in hiring the preparer. Are they new to the game? Do they have corporate or Big 4 experiences? Have they assisted clients in your trade or business?
  • What kinds of clients do you work with? Hopefully they say real estate investors. If not, move on.
  • Are you available year round? As a business owner, you want to hire an advisor, not just a tax preparation service.
  • What’s your experience with the IRS? You want to know if they have defended clients in an audit or have provided written correspondence to substantiate the basis of a client’s tax position.
  • Who will be performing the work? You want the CPA’s expertise so you will also want to know if a junior accountant will be assigned to your account.
  • Are you conservative or more aggressive, and can you give me an example? Answer this for yourself, then see if the CPA matches your risk tolerance.
  • How do you bill for your services? Fixed rate vs. hourly. Are they transparent? Will they provide you with time sheets?
  • Do you use tax software? Using software mitigates risk for errors. Hopefully your CPA does.
  • Do you offer an initial consultation or is there a charge? Reputable firms will provide you with a free consultation.
  • What records will you need from me? You will want the CPA to send you a tax organizer. Otherwise there will be a lot of time wasted in back and forth communications.
  • Can I file electronically? Reputable firms have the ability to file electronically.
  • What happens if I get audited? You want to know if and how the CPA will go about defending you against the IRS.

What are some things you look for in your CPA and business advisors?

Leave comments below!

About Author

Brandon Hall

Brandon Hall, owner of The Real Estate CPA, is an entrepreneur at heart who happens to be good at taxes. Brandon is a real estate investor and CPA specializing in providing business advice and creative tax strategies for real estate investors. Brandon's Big 4 and personal investing experiences allow him to provide unique advice to each of his clients. Sign up for my FREE NEWSLETTER to receive tips and updates related to business and taxes.

26 Comments

  1. Denise Evans

    Brandon, your advice is excellent, especially regarding using an accountant as an advisor, not just a tax preparation professional. I do not know how anyone can make a single real estate decision without knowing the tax consequences of the deal, and the different ways to structure a deal. A good accountant will help educate you on these matters. Even if those subsequent consultations cost the client a fee, they are worth every single penny. What is a one-hour consult fee vs. tens of thousands of dollars in unnecessary taxes if you don’t structure things properly?

  2. Randy E.

    Hi Brandon,
    Thanks for the tips. I’ve been thinking about getting a CPA for a couple of years now, but haven’t made the jump. Your article just pushed me a little closer to deciding to get a CPA. Expenses are always a concern, but I’m getting to the point where I don’t have the time/patience/knowledge to feel comfortable that I’m the best person for this job any more. I’m in a real estate investment group and that group uses a CPA. Every time we mention something CPA-related and one of the board members says “why don’t we run this by the CPA and see what he thinks,” I feel like I need my own CPA to handle my personal business.

    I guess the time for baby steps and indecision are over. Time to start investigating in earnest.

    • Brandon Hall

      Randy – Call up a couple local CPAs and non-local CPAs. Ask them how they can help you in 2015 with your real estate ventures (remember you don’t just want a tax preparer). You want to look for responsiveness and try to find their risk tolerance level to make sure it matches yours.

  3. Curt Smith

    Tnx Brandon, For folks reading this piece I have the following to add. I learned a valuable lesson from a fellow investor in my REIA when they where audited by the IRS. The short story is that they changed accountants and the new accountant scoffed at the prior accountant’s leaving so much $$ on the table and urged my friend to file an amended return. Poof! Audit. You see this high lights several things in the tax prep / accountant / CPA business that folks need to know:

    – When you sign your return you are attesting to EVERYTHING is factual. When you sign an amended return that materially changes the original return, you are saying you lied on the first return. POOF you get an audit. Sure sure always shades of grey. The point is, be very careful with amended returns. Especially if you have an accountant or CPA pushing you based on lower taxes paid.

    – The unfortunate business model of selling your services as a tax return preparer sets up competition between preparers. If not overtly sought by the client, it’s inferred, give me the lowest tax bill and I’ll give you my business. This is a recipe for disaster but it’s common in the tax prep / accounting industry!

    – Give the same return to 50 tax preparers and you’ll get 50 different tax amount due. This is well documented! Lets admit to this gorilla in the room ok? We have to be aware of the falicy that hiring a CPA or just a tax accountant will get us a correctly filed return!!! This is plain BS.

    – I took a Quick Books for realestate training by a well known CPA. He started out the class with a broad statement that real estate investors need to know about the tax code and know their books in detail. He was VERY assertive that investors need to do their own taxes and not use a CPA. He said he was sick of the bad things that happen in the CPA/tax prep business he was getting out. See the above 2 points. As a result I use turbo tax for business and frankly the tax regs for rental business are not complex. Turbo tax is just fine. With the exception of the bullet we all dodged this year re form 3115 (would have been very bad for all of us landlords) and the rare mostly commercial issue of cost segregation, I don’t know of any tax reg issue that most landlords shouldn’t be able (or SHOULD be able) to fill out their own taxes. Honestly you spend as much time prep;’ing the data for an accountant than if you just punched it into turbo tax yourself… Just my view.

    – Ok ok you think, from the above bullet point of me doing my own taxes I may be over paying taxes because I don;t know all the tricks. See point #1 and #2. I’m actually glad I pay a bit too much if that’;s the case. If I get audited I have built in fixes for their penalties by re-doing my tax returns as a result of the audit I’ll take rest of my deductions (179’s etc) that I left on the table. Some I even knowingly leave on the table as a built in safety for thwarting an audit. You question this? I’m a software developer by trade. I know that the IRS uses algorithms to determine profit potential of sending a return to the audit department. I intentionally wave red flags that I have under taken some deductions so as to represent a low profit return to audit.

    That said, I will look for a corporate tax accountant when my commercial LLCs that I’m going to be creating needs S corp returns prepared. I’ll use them for a year and then take that in house after I get it set up and see the ropes.

    I didn’t get into the topic of: tax accountant vs CPA. If you know something about the testing / licensing needed to become a CPA you’ll realize that you don’t HAVE to use a CPA. CPAs are possibly way over powered and expensive. You mainly need a tax preparer who does 50% or more real estate business returns. If I was looking for a tax preparer I agree that making sure they have a PTIN and they do mostly real estate returns. But I’m not at least for my rental business (20+ rentals, 6 new rehabs per year). I’m happily using turbo tax. I’m smarter about my business’s structure since I know more about the tax code, I’m less likely to get audited (I believe) and I’m ahead at least $1k / yr saving on paying someone else to punch the numbers.

    • Brandon Hall

      Thanks for the reply Curt. Overall, a CPA is held to a higher standard than that of a non-CPA and the CPA has usually gone through much more training than the non-CPA. As a client, you buy yourself time and assurance when utilizing a CPA’s services.

      To your first point – filing an amended return does not in any way tell the IRS you “lied” on the original return. It does mean that you found a mistake and are correcting the issue. While amended returns are scrutinized more so than a regular return, it doesn’t raise audit flags and there is no concrete evidence suggesting amended returns result in audits. The IRS doesn’t want you to over pay or under pay and wants you to correct any issues with amended returns, which are actually more common than you may think. Additionally, if a CPA suggests you file an amended return, it may be for good reason. As a CPA, I cannot sign off on a return in which I know it lacks a substantial basis for the tax position (Circular 230). So when I suggest my clients amend a return, it’s either because they left a lot of money on the table or they made a substantial mistake in years past and now that I know about the mistake, I can’t sign off on the current year return.

      To your second and third point – while this article was tailored to tax services, it’s important to note that most people hire CPAs to act as a business advisor. Taxes are a part of the service package, but generally not the sole reason someone hires a CPA. I can tell very quickly when a client is only looking to hire someone who can produce the lowest tax bill. I generally point those clients in a different direction because my services aren’t for those willing to straddle ethical boundaries in their tax reporting. A CPA is held to a much higher standard than a non-CPA and our services are not being commoditized in the industry as you refer to. Tax preparation services in general are being commoditized, but I’d be willing to bet that most CPAs are not lowering their prices because that’s not the business model they adhere to.

      To your fourth and fifth points – That’s great that you are competent enough to prepare and file your own taxes and I commend you for it. I value transparency and educate all of my clients on the various regulations that affect their tax situations and yet they continue to come back to me for my services. The fact of the matter is that most people do not want to learn about the regs, and even if they do, they’d prefer a professional help guide them through it. When someone pays for tax services, they buy themselves time to pursue their business ventures. If you are efficient enough that you can do your taxes quickly without a mistake, it may make sense to prepare them yourself. However if it takes you say 20 hours to prepare your taxes, you have effectively values your time at $50 and hour (using your $1k fee in your example). That doesn’t include the time it takes to actually learn about the regulations, which can add up to hundreds of hours.

      Additionally, intentionally leaving money on the table doesn’t help you at all. It only hurts you because that’s less money you have to apply towards additional investments. Let’s also address the statement you made: “When you sign your return you are attesting to EVERYTHING is factual.” Based on you intentionally “building in” audit protection, wouldn’t you agree that you are falsely stating that everything in your return is factual when you sign your returns?

      In the event of an audit, if you have everything well documented and can support your tax position, you will be perfectly fine. Working with a professional will help you do this.

      I’ve assisted business owners like yourself. They are proud that they have been handling their own tax position for such a long time however after reviewing their returns, I find they incorrectly report many items.

      A CPA is an added level of protection. They are held to a higher standard than a non-CPA and therefor mitigates your risk to a certain degree. When utilizing a professional’s services, you are buying yourself time and saving yourself current and future headaches. You may have your taxes down, but there are plenty of people that need and want the help.

  4. Curt Smith

    Ha! Great point Brandon re CPAs are more for business consulting. I’m over educated, spending many many $k / yr on education even if redundant that I forget that most folks actually have a low level of business structure / protection knowledge and even if they know of a strategy they don’t know how to get started. Thanks for mentioning this and is a valuable point for most folks. I appreciate this reminder but it does reinforce my view that if all you need are your taxes filed, you can save money using a competent accountant with the above helps on finding one. Start at your local REIA for referrals for one.

    I agree with everything you commented.

    I was too subtle re my comment re filing an amended return. The nuance is: “materially changing the return” is where the problems occur. From experience of observing just one return, my friends amended return didn’t go well for him. I wish I had the details on what was changed in the amended return to offer an example problem area.

    Tax prep-wise I could use a good circa 2015 discussion on improvement vs repair especially in light of the IRS’s showing their future direction re their recent form 3115 situation. I think even for folks who turn over their books to someone else, this would be a valuable discussion.

  5. Hey Guys-
    What a great, honest, in-depth discussion of the items that concern me as a lender, rehabber and landlord. My CPA turnover is not a pretty sight. I am considering traveling farther for more comprehensive advice, right down to business structure and bookkeeping. What a mess I have because I have put this off for several years, thinking the right discussion would come along and set everything straight. I finally found a wonderful CPA who came to my house, put everything on QuickBooks, had a new business philosophy worked out and ready to share with me, created 3 years of amended returns- and suddenly, tragically passed away at an early age. I still have not filed my 2013 taxes, as we were not yet at the point where I understood my own taxes. Many have advised me to “just do Turbotax!” Not that easy, playing with fire, I think. I will be following this thread, and any others, that help me have an “Aha” moment or two. Keep the discussion going, everyone. This stuff is important!

    • Brandon Hall

      Margaret – Sorry to hear about your CPA. Be careful with turbo tax. I think it’s a great piece of software when tax positions are relatively easy, but it sounds like yours is relatively complex.

      Shop around for a CPA and don’t be afraid to use a non-local one. You will have better luck at finding one that can answer your questions and tailor a strategy to fit your needs. Make sure you find out roughly how many real estate investors the CPA serves. The more the merrier.

  6. Lin Vanderhook

    I do not ask my CPA for advice on real estate investments. I stick to my conservative comfort level.
    But I DO ask re tax consequences , of doing , sales and exchanges. She has this magic software, that takes in my depreciation etc., and gives me the tax hit of question.
    My last CPA tax prep. bill was over $1200. This is California.

      • Lin Vanderhook

        6 SF rentals. Purchased 2 of them last year.
        $200 a month / property, to keep me good with the IRS..and state of California.? Works for me.
        Clarify entities. I used Property management company , for the first time last
        year, at my CPAs advice/request. 6% charge.

  7. Allison Karrels

    I just requested a quote on your website – I think it is time for me to try a CPA for my taxes instead of TurboTax. I think we have a fairly simple return – 2 normal jobs, 4 rental properties – but I would like to see what a professional thinks and if we should be doing things differently.

  8. Walter W.

    Brandon,

    Thanks for the article. I have done everything on TurboTax, but my taxes are slowly getting more complicated. Is there an intermediate step? Like doing your taxes on Turbotax but also hiring a professional to review your work?

    Thank you,
    Walter

    • Curt Smith

      Walter, I’m finishing up our taxes via turbotax, 10 rentals, a few sandwitch-lease option (Sched C), a few K-1s.

      What issues are you calling “complicated”?

      We will at some point, take our completed and filed return to a well respected real estate tax guy (need not be a CPA IMHO) for curiousity. Since we stay WELL on the conservative side of expenses and 179 deductions, virtually no travel expenses, no home office etc all the red flag issues we avoid. So Tubotax is just fine since I want to stay simple.

      My REI friends in my local REIA get audited thanks to their tax folks. I hear the tax prep folks bait for business with higher refunds. I’m sure any honest CPA will blanch and go nutz at hearing this,,, but this is the world we live in and why I use turbotax and self filing. Also, we where at a closing and my wife asked the closing attorney for a tax guy referal,,, it was howeling funny for 5 minutes they mentioned names then said,,, no we can;t refer that guy cuz… on and on.

      Sure there are REI tax folks who are genuinely worth their weight in gold, but how can one be sure the one you are taking your return to is going to be that good for you?? This is the problem!

      I like math, I even like tax code. I may not be like most folks I admit. That said, I strongly feel all business owners have to be very VERY knowledgable in the tax implications of their strategies and business practices. The theory of using a good CPA is that they give business advice as well as tax prep. Ok, if that really happens AND it;’s GOOD advice. The closing attorneys gave a bunch of stupid business strategy tips that would have had bad tax implications.

      In the end, there’s nothing that replaces being educated yourself in taxes, tax prep, entity strategies. Talk to old timers in your REIA about these things, then the CPA, then the old timers again to cross reference what you where just told. My closing attorneys gave bad advice had I not been well educated.

        • Curt Smith

          Hi Walter, I’m not giving advice that you or any business person should go it alone without professional advice. I’m just saying that because I like tax code, am good at math and strategies, that for our business my business partner and I have weighed the risks and decided to use turbotax.

          I agree with the wonderful CPAs who post on BP that a CPA is worth more for the business advice that can give than the mechanics of filing taxes. I agree with that. In theory a good REI CPA who sees 100’s of clients should be able to give some darn good advice. We plan on giving that a try asap. 🙂

          BTW you’re going to have to file state tax returns in each state you have a house. But TT should be walking you through that for some fee per state, thankfully.

        • Brandon Hall

          Walter – I usually tell people that Turbo Tax is reserved for individuals who enjoy paying more in taxes each year. Get yourself a CPA, trust me.

          Curt is a special breed of investor being that he reads (and understands) the tax code. Turbo Tax may fit Curt quite well, however if you don’t know what you are doing, you are going to leave serious money on the table.

        • Curt Smith

          Hi Brandon, I agree with what you said re most folks filing their REI taxes.

          Is there a blog post on how to choose a tax preparer for a REI return?

  9. I appreciate your tip on only taking advice from a CPA who actively practice in your business. It would seem important to find an accountant who is currently working in your field as that would be an important way to see if they have the experience it takes to be effective. My brother runs a small business and would like to hire a CPA, maybe he should consider looking for one who is actively practicing in his trade.

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