CPA vs. RE Accountant vs. RE Attorney for Tax Planning???

[Timothy Lewis]

Hello BP World!

When it comes to handling Real Estate tax, I consistently hear 3 different titles of tax professionals/specialists thrown around: RE Accountants, CPAs that specialize in RE, and RE Attorneys. I'm looking for someone to help button-up my 2020 taxes and assist in 2021 tax planning/strategizing (throughout the year). I'm currently leveraging my W2, pharmacist income to buy rentals. I have a couple LLCs and a business partner. Which tax professional should I be working with? Does it even really matter?

I'm curious to hear the good, the bad, and the ugly experiences others have had with RE tax planning. 

Thanks for the help and insight!!

[Michael Plaks]

@Timothy Lewis

People who prepare tax returns or provide tax advice are not required to be licensed. There's no competence test or similar legal requirement, so anybody can do it if they choose so. Now, let's try to understand some terms.

Accountant - this is merely a name of one's line of work, similar to being called a painter or a teacher. Accounting is a wide field, including keeping track of income and expenses (bookkeeper), preparing financial statements (accountant), reviewing financial documents (auditor), managing corporate finances (controller), preparing tax returns (tax accountant) etc. In other words, when someone calls himself an accountant, it's hard to say what he actually knows or does.

Tax accountant - an accountant who specializes in taxes. Could have some professional designations or licenses (an EA, for example) or none. Could be a high school dropout or have a Master's degree in accounting. Again, a generic term indicating her line of work and specialization.

CPA or Certified Public Accountant - an accountant licensed by her state to practice accounting officially. It involves extensive training in all areas of accounting, including taxes, passing complex exams, accumulating some experience working under another CPA's supervision, continuing education requirements and code of professional conduct. Basically, a CPA license is supposed to indicate a competent and ethical professional. @Lance Lvovsky who replied above is an excellent CPA local to you.

EA or Enrolled Agent (like myself) - a person trained in taxes and licensed by the IRS to do tax work, specifically to represent his clients in dealings with the IRS, such as IRS audits and collection. Just like with CPAs, it takes extensive study, a complex exam, continuing education and a code of professional conduct. There's no apprenticeship requirement for EAs. Some EAs are former IRS agents. Since the letters EA are not as well known as CPA, some EAs choose to call themselves tax accountants.

CPA v. EA - both could do exceptional tax work, including tax planning and IRS representations. CPAs are trained in accounting, with taxes being a small part. Some CPAs specialize in taxes, and some never touch taxes. EAs are trained exclusively in taxation and are not allowed to perform certain accounting tasks, such as auditing financial statements. EAs are often more focused on taxes, while CPAs often provide broader services. The two designations are very similar in most cases.

Attorney - licensed by his state to practice law, just like doctors are licensed to practice medicine. Also just like doctors, some attorneys are generalists doing a little bit of everything, but most have some area of specialty: divorce, personal injury, immigration, labor, taxation, real estate, etc.

Real estate attorney - an attorney specializing in real estate. Even that is too wide of an area. Some RE attorneys do contracts and closings, some do evictions and litigation, some focus on commercial transactions, etc.

Tax attorney - an attorney specializing in taxation. Some of them prepare tax returns, and some don't. Most of them do IRS or state representation, specifically when it involves taking the IRS or a state tax department to court. Most disputes with the IRS, including audits, do not involve litigation and are handled by CPAs or EAs, usually cheaper. The more complex cases where you are ready to battle the IRS in court - this is when you really need to pay big bucks for a tax attorney.

Who do you choose depends on your goals and budget. CPAs, EAs and attorneys are the 3 groups of licensed professionals who often offer tax planning. Their specific license is not very important, frankly. Focus on their professional competence and services they offer. Good luck!