Lean On Your CPA For Advice
By Paul Esajian on September 13, 2013
Many new investors fail to realize that when they get started in real estate, they need to treat it as a business. One of the first things most new businesses do is enlist the services of a good certified personal accountant (CPA). This is even more important if you are dealing with real estate. A good CPA can not only save you money come tax time, but they can protect your interests and guide you throughout the year. Between 1031 exchanges, appreciation, depreciation and capital gains, there are a lot of terms and practices that you may not be aware of. Fortunately, a good CPA can handle all of this for you.
If you come to the real estate world from a traditional W2 position, you may have been able to do your own taxes or, worst case, paid a relatively low amount to get them done. With investment properties and real estate income, you want an experienced CPA and they come at a higher price. Between constantly changing tax rules and codes and how to maximize your year end, a good accountant is worth whatever the fee is. Any attempt to manage your taxes by yourself, especially if you are unfamiliar in this area, can result in the loss of substantial amounts of money.
The worst case scenario for any taxpayer is being audited at some point down the road. Unless you have an accounting background, there are too many write offs and deductions to do yourself. If you don’t know what you are doing and write off things you can’t, or shouldn’t, you will get red flagged and you will get audited. That alone could end up costing you thousands of dollars down the road.
Using depreciation can allow you to write off many expenses and get a good chunk of change back on properties that are not cash flowing as you expected. Your accountant will know what to write off and how to structure your tax return. There are areas where you can go the inexpensive route in the business, but your accountant should not be one of them.