CPA Interview - What are your top 3 questions?

Question

Hi,

I'm a newbie to real estate investing. My time has been spent educating myself over the past several months.  I'm ready to begin assembling my team and get a corporate structure in order.  My first team member I'm looking for is a real estate CPA.  I would love some guidance on homing in on the skills and experiences the "right fit" CPA needs to have to ensure we have a solid working relationship.

What are your top 3 questions that you would ask during a CPA interview?  What are three "red" flags you've encountered in working with a CPA?

Thanks a bunch for your wisdom and guidance.

Jenny

Amanda Han · Answer

Thanks for inviting me to chime in here @Paul Timmins . Here are some tips I suggest:

1. Find out if they specialize in real estate. This is important especially if real estate will be a large part of your transactions during the year. You want to work with someone who understands your business and your industry so they can help you plan accordingly to minimize your taxes.

2. Make sure they are smarter than you and you are not the one bringing them strategies and ideas each year.  If you find yourself in that situation, you may either want to upgrade to another CPA or you might as well do it yourself on Turbo tax.

3. Get references: references and testimonials from other investors is important. Everyone can talk about how wonderful they are themselves but its what other people say that is the key.

4. Fee arrangement: Understanding the fee before you start working together. A lot of CPA firms charge tax returns by the hour so if you are speaking with someone who does that, make sure you know how many hours your taxes will take so there are no surprises half way through the return. If you are given a set fee for your taxes, make sure you understand what that fee includes and what potential add-on costs there may be, if any.

Kyle Samuel · Answer

I would take a different approach to choosing a CPA. I was a CPA for a few years and worked in a large firm with 400+ CPAs and a small firm that employed 4 CPAs.

I would, respectfully, disagree with choosing a CPA based on them being a 1 man show that doesn't bill for every little thing you ask them. All CPAs are not created equal. Tax laws change all the time, so just because someone has been in business for 30 years, doesn't mean they are up to date on all the new tax laws. I worked with one CPA who was 75 years old, had been a CPA for his entire life, but all his clients were just as old as him and I wouldn't have wanted him to have any part in my taxes or tax planning. I would say finding a CPA who is familiar with real estate investing is the most important thing to look for, preferably one who is involved with real estate themselves, such as owning rental properties.

Everyone in business is in business to make money, and time is money. The smaller firm I worked for employed 4 CPAs. 3 of the CPAs did most of the work and the owner spent his time responding to emails and talking with clients to answer questions and solve problems. You might find with a 1 man show, that they are spread too thin, and response time may increase.  I wouldn't expect to be billed for calling with a quick question, but I would also ask about something like that upfront.

Account Closed · Answer

@Jenny D.

I agree with @Frank R. and would add that usually those CPA's are a little less expensive. I use a CPA with a mid size company and get charged a much higher rate than a few of the individual guys charge. The benefit of the bigger company is all of the knowledge/experience of the rest of the company. My CPA will also let me take him to lunch to ask some questions, as long as I don't abuse it.

It also depends on your strategy. Do you intend to flip, buy and hold, lease option, etc? S - Corps are one of the better entities for flipping. LLC's are generally the best for buy and hold and possibly lease options depending on how many you do. I know several buy and hold Landlords who use Series LLC's, not available in every state yet, but I believe are in DC. The have a Master LLC and then set up a different series under the master for each property. There isn't much case law on it yet to support separate liability for each series, but that is their goal. In IL its only $50 to set up a new Series, which can use the same bank account/tax return as the Master. Although that might be seen by a Judge as less separation than the Landlord wanted.

Bill Gulley · Answer

First choice would be an accountant who invests in RE. So that's question one.

Secondly, I'd inquire about their practice, any CPA can do work for RE but is RE the majority of their work?

Third, I'd want to know if they do tax planning and are actively involved in estate planning, trust accounting and asset management aspects.

If you get a positive response in all three of these areas you have a home run on the technical side.

Gauge their ethical manner, their personality, would they be trustworthy as an advisor (you don't want a drunk and there are many).

Know how they bill, ask about a quick question and any retainer fee and hourly rate.

If they do not have the CPA designation (not really required) ask what their education is and what certifications they do have. You don't want to get just a tax guy, someone who practices as a preparer is responsible to go to or answer to the IRS, that's not a qualification. Licensed to appear before IRS to represent a client is only to tax matters, they may not have an accounting degree but tax training. They don't have the same training requirements as a CPA. The plus to a CPA is they more extensive accounting and legal training and legal aspects of the Code.  But they may be more than qualified if they are hitting on those three points above. Then you may fall into a bookkeeper category, many learn on the job and have some kind of accounting training. I'd bet that someone who has been doing the accounting, books and taxes in a real estate investment type business for 20 years could do fine too.

Ask for references and verify them. I'd bet the number one complaint would be over returning calls in a timely manner, many are much like a good attorney, they are busy. You don't really have emergencies in accounting so IMO cut them some slack. :)

Quinten Jones · Answer

I think you would be good to hire an Enrolled Agent vs. a "CPA".  Enrolled Agents can help you with your tax filings and often have more time to answer your questions without nickeling and diming you to death.  An EA who specializes in real estate transactions can easily put together a Schedule E, or take care of any dispositions you have.  Additionally, when you run into problems with the IRS, Enrolled Agents are authorized to represent you before all administrative levels of the Internal Revenue Service.  Also, some EAs are admitted to practice before the U.S. Tax Court.

Additionally, take the time to interview anyone whom you hire to help you manage your financials.  Just because they have CPA or EA behind their name, does NOT mean that they are competent.  I wish you the best of luck in finding a qualified Accountant/ Tax Professional.

Marcia Maynard · Answer

We are buy and hold investors with 15 rental units.  Our tax guy is an Enrolled Agent (EA), not a CPA, and does very good work.  He is personable, calm and patient in answering our questions.  His turnaround time is good and he has saved us money over the years, because he knows things that we don't and he is much more efficient in doing the paperwork.

I used to do my own taxes, even did other people's tax returns with VITA (volunteer income tax assistance) when I was younger.  I'm not shy about doing my own taxes, but would rather focus on my own professional work and hire a tax professional's time and expertise to do what they do so well.

The tax laws are more complex than "back in the day" and forever changing.  Seek out referrals from local real estate investors who have a profile similar to yours or have a profile you would like to emulate.  Find someone you like and stick with them.  I love the fact that my EA keeps close tabs on what I amortize and what I depreciate, understands my real estate goals and is honest and frank with me, in a gentle way.

Of course you still need to understand the tax process and implications.  The records you keep and what you give your tax preparer to work with are paramount.  You will be held responsible in the end for what you submit to the IRS.

Franklin Romine · Answer

I like dealing with a CPA that is a one man show.  The guy that has been in business for 30+ years, might smoke in the back room of this office, works late, has a long list of longterm small business clients and someone you could call  sat or sun ask a question and never receive a bill.  You don't waste there time, you bring them a gift a couple times a year and they will have your back.

Paul Timmins · Answer

@Jenny D.

Great post!

Paul

Brian Gibbons · Answer

@Steven Hamilton II and @Bill Walston may want to chime in here.

CPA Interview - What are your top 3 questions?

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