Even though it may appear to be an easy task, finding a professional certified public accountant for your real estate investment firm requires much study and time.
The best certified public accountant (CPA) advice for investors typically comes from someone who either invests in real estate (RE) themselves or has a large number of customers who do. A real estate bookkeeper is a type of accountant who specializes in financial transactions involving the purchase and sale of real estate.
Many outsourced real estate accountants have several tasks, and some also help manage or lease properties. If you have a background in accounting and wish to specialize, you may become a real estate accountant. Can you recommend a real estate accountant near me? Finding the right accountant is something that many real estate investors (both new and experienced) struggle with.
An accountant is an incredibly vital team member who may make or break your capacity to:
- Locate and use as many tax breaks as feasible (of which there are many for real estate investors).
- Respect our ever-changing tax code’s laws and regulations.
- Maintain a record of your ongoing company transactions.
- Maintain your organization by employing a logical financial record-keeping system.
- This person is an essential part of your company.
What is the role of a real estate accountant?
The following are some of the most important responsibilities of a real estate accountant:
- Supervising a real estate company’s accounts payable and receivable
- Examining financial data to reconcile corporate finances
- printing and distributing checks to facilitate property acquisitions and sales
- Engaging with vendors to ensure timely payment of invoices
- Utilizing software to capture and arrange financial data such as customer invoices
- Property management or leasing to tenants
- Using journal entries to keep track of income and spending
Why is accounting vital for real estate businesses?
Setting up your real estate accounting system correctly will allow you to reduce the effort and stress associated with high-value transactions, dramatic income swings, employee pay formulas, and regulatory restrictions.
These suggestions are for you if your business is:
- Real estate broker or agent
- Property management
- Building Construction
- Residential sales
- Real estate investment management
Another reason to maintain good financial records is that you will almost certainly be required to reveal them to interested parties at some point. These organizations are as follows:
- Government bodies (e.g., the IRS)
There are several reasons to preserve accurate records. Furthermore, contrary to common assumptions, it does not have to be a significant headache or inconvenience. You may outsource your bookkeeping and tax work to a service, allowing you to focus on what you do best.
Why should every real estate agent have an accountant?
Every year, millions of Americans file their taxes using do-it-yourself tax software that is both affordable and simple to use. For real estate brokers, though, this may be a costly error for a variety of reasons. A skilled accountant will assist you in maximizing your tax deductions, providing financial advice, and planning for the future. There are several little-known tax breaks available to self-employed professionals, such as real estate brokers. A qualified accountant can assist you in taking advantage of these opportunities. We propose that every real estate agent ask the following questions of their accountant:
- What tax advantages do I have as a self-employed real estate agent?
- What exactly is self-employment tax, and how does it apply to me?
- What retirement-saving choices do I have?
How to Choose an Amazing Accountant
There are lousy accountants, decent accountants, and outstanding accountants, just as in any other profession. Choosing one that will lead you through the financial maze of self-employment is the key to making your life simpler and saving you a lot of money on taxes. The key is to locate an excellent one. Here are a few pointers to get you started:
- Check that they are CPAs and not just tax preparers. Most tax preparers require only a basic course, but CPAs must have a four-year degree with a speciality in accounting. Their expertise will be much greater, and you will benefit from it far more in the long term.
Inquire with the top-generating agents in your office about who they utilize. They have the most to gain (or lose), so they are likely to know a fantastic one.
- Make sure to ask the accountant if he or she charges for addressing typical accounting queries. A smart accountant will not charge you for every phone call or email response. You’re likely to have a lot of questions as a real estate agent, especially after you start making a lot of money.
- Inquire about his or her experience as an accountant.
- Inquire how many other real estate brokers are among her clientele.
- Inquire with him or her about what will happen if you are audited. Do they assist you in the process?
Choose who or what will handle your real estate accounting.
The following are the most realistic possibilities for real estate professionals:
- Employ an accountant on a full-time basis.
- Accounting services might be outsourced.
- Management or other designated staff utilize accounting software.
Employing an accountant to work in-house is an effective strategy, but it is expensive and certainly beyond the reach of many real estate enterprises. On the other end of the scale, getting accounting software to handle the books for yourself or your team may be challenging if no one has sufficient accounting expertise or the time to devote to keeping your accounts up to date. Little accounting errors might build up to larger ones later on.
For many real estate agents and brokers, the middle ground—outsourcing accounting responsibilities to a third party—will make the most sense. This method allows you to keep costs low while also freeing up your time and allowing you to hire specialists to ensure quality work.
Select an Accounting Method
You have two options: cash basis or accrual basis. Whenever you make a decision, you must stick to it until you file a modification request with the IRS. (Your first tax return tells the IRS which one you choose at the start; you don’t need to submit any documents for that.)
Small companies choose cash-basis accounting because it is easy to manage and shows you how much money you have in the bank on any given day. Accrual accounting is typically preferred by larger corporations since it provides a more accurate picture of your real estate company’s financial performance. Accrual accounting also enables you to improve your long-term strategy, which is useful if you are thinking about starting a business.
Make an accounting chart.
This comprehensive record of your company’s transactions is critical for understanding where you stand. When you need to monitor performance, make a report, discover historical transactions, or file tax returns, it will save you several hours of effort.
The chart of accounts is classified for simple sorting and retrieval. These categories can be whatever you want them to be. Currency accounts receivable and vehicles are examples of assets. Accounts Payable, Loans, and Payroll is examples of sub-accounts under Liabilities.
Differentiate your business and personal transactions.
Don’t make the mistake of using your corporate credit card or chequebook to pay for personal costs—or vice versa. It will always create more problems than it solves, such as erroneous bookkeeping, tax blunders, and cash flow challenges.
Our Bookkeeping Experts are here to help.
Real estate accounting should not be hard, and one of the golden principles to follow is to avoid making personal transactions using corporate accounts. Establishing a separate company bank account and credit card will also help you appear more professional to your clients, creditors, and investors.
Accounts receivable are foolproof.
One of the most difficult problems for small businesses is collecting overdue money. Avoid late and lost payments by using an automated invoicing system that:
- sends invoices promptly.
- includes all the necessary information.
- offers several convenient ways to pay.
- tracks and contacts delinquent payers.
You’ll save time and prevent losing money that fell through the cracks because you were too busy to chase it down with an automated system in place.
Dealing with a Real Estate-Specific CPA
Working for a commission-based company can reduce income, especially if there are significant delays between incurred expenses and reimbursement. There are always obstacles and risks, even if you have a basic wage to boost your earnings. And if you operate a business, the financial maze can be much more perplexing. Employing the services of a firm with experience in accounting for real estate enterprises may assist you in managing the day-to-day and long-term realities of the sector by providing a variety of critical tax and accounting services, such as:
- Strategic tax and financial planning
- Budgeting and forecasting
- Real estate accounting services including cash flow analysis.
- Helping determine the appropriate business structure for both financial and legal purposes
- Property valuations
- Lease reviews and analysis
- Insurance consultation and guidance
- Real estate investments, property acquisition, and deal structuring
- Preparing your taxes
Yet, this is only a sample of what is available, as services are tailored to the individual requirements of every professional or firm in the sector. Because the real estate landscape might be filled with endless hills and valleys, with twisting roads leading to fresh surprises around every turn, best business practices mandate the necessity for specialized, competent real estate accountants.
How to Pinpoint an Excellent Real Estate CPA
Getting a skilled RE CPA entails more than simply contacting someone for fast tax advice. There are several elements to consider, making it a time-consuming and labour-intensive procedure. But it is critical to ensure that you are dealing with the correct tax strategist—one who knows the complexities of various real estate investing techniques.
So, it may appear like there is a lot of information to comprehend to thoroughly evaluate a real estate CPA, so let’s do a short recap:
- The most important criterion is a CPA’s expertise and experience in the real estate business. The more experience they have in the industry, the more knowledgeable they are about real estate investing tax methods. This is a major warning signal for someone new to real estate tax methods. Investors should exercise caution! Remember, the more years you have, the better!
- Consult your real estate attorney or other investors who work with a real estate-savvy CPA. Attending meetings is a fantastic way to learn what other investors think about certain businesses.
- The more credentials you have, the better. Because of the additional criteria for this qualification, a CPA who is also a CFP and is in charge of long-term financial planning for customers is a step above. While this is not a typical or needed combination of licenses, it is always good to meet someone who possesses both. Possessing an enrolled agent (EA) registration is also advantageous, although it is not a necessary combination of licenses.
- Schedule numerous interviews with possible CPAs and get references. Any competent CPA will not take offence and will gladly agree to these.
- A good CPA will offer tax solutions in addition to tax filing. A tax strategy can help you save money for years to come!
- Make no hasty decisions. Make a list of potential CPAs and take your time selecting the ideal one for your tax requirements. Although personality is not an important factor, trust is. You will be entrusting them with the authority to assist you in saving money on taxes, so having faith in your CPA is essential. Any CPA who does not put you at ease should be avoided.
- A CPA can also be a tax attorney. This is a less frequent yet extremely advantageous combo.
- Any CPA who attends meetings to broaden his real estate knowledge and tax expertise by interacting with real estate investors is also an excellent option. It demonstrates a great interest in real estate as an area in which he or she may wish to keep current.
Ultimately, researching CPAs and selecting the appropriate one, like every other best practice in real estate investment, is a huge choice. Conduct your research, build relationships, verify backgrounds, and seek references before selecting the ideal specialist to help you achieve your real estate investing goals.
In favor of Velans CPAs
At Velan, we devote all of our resources to your real estate business, whether you are an individual agent, a member of a firm, or the owner of a real estate company. We collaborate with you to determine:
- Your tax status as a real estate professional
- What records to keep and paperwork to submit
- The best accounting practices to use
- Your business and personal expenses
- The best approaches to managing money and expenses
We are real estate tax accountants in addition to offering services for the core parts of your organization. As a result, we develop precise tax plans to assist you in efficiently managing your finances by setting deduction boundaries that allow you to keep all of the money to which you are entitled, saving you time and money. We also prepare and file all tax documents on time to avoid penalties and fines. If you are the owner of a real estate business, we can also help you boost profitability, minimize operational expenses, handle payroll, and design and manage employee benefits.