Is it Really Worth Hiring a CPA?
Tuesday, April 05, 2016
Written By: Shavonne Martin
It’s every REALTOR’s most beloved topic… taxes!!! Many real estate professionals had a great 2015, whether brand new to real estate and especially seasoned agents. And yet, this time of the year when many agents are busy gearing up their production the last thing they want to focus on is organizing their business receipts and preparing their taxes. Most agents prepare budgets at the end of the year to allocate business expenses in an effort to stay financially responsible. However, somewhere between multiple offers and closings it becomes obvious that it is really worth it to hire a CPA.
Hiring a CPA can serve as a great resource and in most cases will provide systems and tools that will help track your spending. Additionally a CPA should be able to help you find deductions and tax saving solutions that you may not be aware of. If your business purchases properties or does property management a CPA can provide reports which include development expenses, operational cost, and profit reports. A CPA can also develop cash-basis reports, income statements, lease abstracts and other finance-related items. CPA’s provide real estate investors realistic and effective financial and investment strategies.
If your business is a team, group, or if you have administrative staff a CPA can suggest the best partnership for you. Intricate details such as how many hours an assistant can work annually, how to structure salaries, insurance allowances vs paid benefits, and who is an employee verses 1099 contractor are reasons why a REALTOR may decide to hire a CPA. Many agents hire a CPA to prepare a 1099 for their transaction coordinators, photographers, stagers, and other business contractors that provide services for their businesses. Many business owners do not understand the difference between a LLC or S- Corp and how it will affect your business, we suggest consulting with a CPA to determine the best option for your business.
The best thing about hiring a CPA is the customized service you receive. It’s hard to gauge how much a CPA will charge you without knowing the scope of work the CPA will have to perform. It’s very similar to a home seller asking us “How much their home is worth?” We would naturally need to know the location, size, and details of the home before determining a price. The same concept applies to a CPA; details matter.
If you have been dropping numbers in software that you buy each year, you could have hired a good CPA by now. Sure it may cost you more upfront but will pay off in the long run because he or she is thorough. A professional and successful REALTOR has business partners; a CPA serves as your trusted financial advisor.
Here are a few tips:
- Build a Relationship: If you are comfortable with your CPA, stick with them. By working with the same CPA each year, they become familiar with your situation and can quickly spot discrepancies or big changes.
- Be Organized: Generally CPAs charge by the hour. If you have a lot of contributions to deduct, consider providing a simple spreadsheet with the donations listed along with documentation. This could lower your bill considerably.
- Don’t Make Assumptions: If you are planning a client event or considering making a “business purchase” consult with a CPA in advance to determine if this expenditure will qualify as a tax deduction and if there are specific details that should be considered.
- Consult your CPA in Making Decisions: Keep in mind tax credits expire. You may be in the market to purchase a hybrid car for the tax saving benefits and then realize the credit expired last year. Contacting your CPA in advance can save you money and frustration down the road.
- Don’t Lie to Your CPA: It’s like lying to your doctor, it only hurts you. Sometimes clients can be embarrassed to share information like gambling earnings or certain medical expenses. Your information is private and helps your CPA determine the best way to claim that expense or report those earnings.
We asked David Phillips a WCREALTOR member, past Board of Director, and trusted CPA his thoughts on the matter and here is what he had to say “In essence as a REALTOR you have your own business even if you are part of a large brokerage. That adds some complexities to your tax return. Spend your time selling real estate and hire a CPA or other tax professional that has the expertise to prepare your tax return correctly and make sure you take advantage of the business deductions allowed. Just as many people use your services as a REALTOR because of your knowledge and expertise, you should take advantage of the knowledge and expertise of a tax professional.”
In addition to hiring a CPA I suggest creating a spreadsheet that will help you track your business expenses on a monthly, quarterly, and annual basis. Remember, the more specific you are it will be much easier for you to hand over your tax documents to your CPA. I use the following apps on my Samsung Galaxy S7 edge to track my expenses:
- Daily Money Manager- you can add income expenses, you can create a budget, see how your finances grow, and get detailed insight with distribution charts.
- Expense Tracker- this app also allows you to track income and the key benefit in my opinion is the expense tracker feature. Although many of the commonly used categories have been entered, there is an option to create a category that is specific to your business and budget needs. You can create checklist, run a summary report, tabular report, and graphical report.
I happen to think a CPA is a wise investment. If you want to ease your stress, work with a professional who keeps up with tax law. Save money, and avoid costly penalties from the IRS by hiring a CPA. If you need help finding a CPA I would suggest looking through your current database. We all understand the importance of reciprocal business and the power of working by referrals as well as giving referrals. If you do not have a CPA in your database, visit WCREALTORS.org to search for a list of affiliates.
About the Author:Shavonne Martin currently served as the 2016 President of WCREALTORS. Since 2008 Shavonne has been very active at Williamson County Association of REALTORS®. As soon as her membership was active she served on the Community Service and Scholarship Committees. Shavonne was the Chairman for the Marketing and PR Committee in 2010. In 2011 Shavonne served as the Chairman of Community Service, and was elected to serve on the Board of Directors for WCREALTORS in 2012. One year later, in 2013 Shavonne was installed on the Executive Committee as Treasurer and also serving as Chairman of the Finance Committee.