Quickbooks, CPA, or Both For Taxes

Quickbooks, CPA, or Both For Taxes

Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
My wife and I are realty agents, and we are in our first year. Up until now, we have been employed by companies that provided W-2s. I am doing what I can to keep track of our finances and tax obligations, but we are looking to start an S-Corp due to wanting to pay ourselves salaries to provide easier proof of income for loans and what not. So, while looking over a lot of tax information, I think that I have a gist of it, but I want to cover our backs and have our taxes handled professionally. I was thinking of getting Quickbooks, as it seems relatively cheap and thorough. But would getting a CPA be better for us? Or would utilizing both be a good solution? Has anyone used both and prefer one or the other? Some background info: being our first year into real estate sales, commission isn't what is will be in our second or third year, as we are building our leads-database. So, we don't have a lot extra to spend on financial preparation. If a CPA is expensive, we might only be able to go that route, instead of Quickbooks as well. We are hoping to head away from real estate sales later on, as we save up, and start investing (another reason for the S-Corp). Thanks for any help you can supply us.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y

Quickbooks and a CPA are not really...a one or the other situation. 

I would utilize both. You'll want a good CPA to not only file your taxes but to provide you with structuring, strategy, and planning advice as well. 

If you have to choose one choose a CPA and track your things on an excel. But quickbooks is only like $140 and will allow you to personally get set up in a way that will allow for tracking profits as you grow as well. 

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  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    Quickbooks and a CPA are not really...a one or the other situation. 

    I would utilize both. You'll want a good CPA to not only file your taxes but to provide you with structuring, strategy, and planning advice as well. 

    If you have to choose one choose a CPA and track your things on an excel. But quickbooks is only like $140 and will allow you to personally get set up in a way that will allow for tracking profits as you grow as well. 

  • Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
    9y
    Natalie Kolodij Thanks for the response. I was kind of thinking that. I don't feel comfortable with leaving our taxes up to myself entirely. I'd feel way more comfortable hiring a CPA to help out.
  • Hillside, NJ · Member since 2017 · 12 posts · 3 votes
    9y
    Hi, I would get a CPA onboard just to make sure everything is in check until you guys have a handle on things and then you can take it in your own hands. Also Quickbooks is a fantastic software to utilizes, but it comes down to personal preference. Some folks like having a live person to speak to for legal, tax and general accounting questions, something a good CPA can provide. Best of luck!
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y
    Originally posted by @Derek Wheeler:

    Natalie Kolodij Thanks for the response. I was kind of thinking that. I don't feel comfortable with leaving our taxes up to myself entirely. I'd feel way more comfortable hiring a CPA to help out.

     Keep in mind you need to utilize them for way more than filing your taxes. That's the value and where we're able to actually make changes. Lots of people don't consult their CPA before they make large financial decisions and then they expect us to reduce tax burden come tax time and It's a little late then. 

    Talk to us we're just people too! ha

  • Lance LvovskyPro Member
    Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
    9y

    I recommend you definitely speak with a CPA who understands real estate investing. Quickbooks is a great tool for maintaining your books, but it is not in lieu of a CPA.

    As Natalie mentioned, you want to consult with a CPA prior to any transactions as to the tax implications - that way your CPA can help you in minimizing your tax burden. Far too many people only go to their CPA to get their tax returns done. Although the importance of tax compliance cannot be understated (it is the law after all), good Tax Planning can go a long way in helping you achieve your financial goals. This is why your CPA should be someone who you can reach out to any time during the year.

    Let me know if you have any questions.

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    It's an extremely bad idea to form an entity and pay yourselves w2 wages.  

    You need a CPA/Financial Planner to give you all the details B E F O R E you take action on this item.

    Also suggest you study more closely the use of a legal entity, especially if the primary motivation is Asset Protection - - see this write-up.

  • Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
    9y
    Originally posted by @Jeff B.:

    It's an extremely bad idea to form an entity and pay yourselves w2 wages...

     Don't most people form a corp to give themselves salary pay? We were trained from a few classes @ Keller Williams to form entities to help reduce our taxes. I want to utilize an S-Corp to supply ourselves with a steady income from what our commissions, and the rest of it will be held in a AAA account. Why is paying yourself a w2 wage a bad idea, if you report everything appropriately to the IRS?

    We weren't planning on starting our S-Corp for maybe another few months; definitely way after we got in touch with a CPA. Currently, we are only bringing in commissions on real estate sales which are only subject to self-employed and income tax. The investment part is going to come way after we have a handle on our finances. We need Quickbooks and a CPA, right now, for simple self-employment and income taxes. 

  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Derek Wheeler My Attorney and CPA in Austin didn't want me to put any kind of real estate investment in a Corp. They suggested LLCs which I went with. I wouldn't make a major decision without using a CPA and I've been doing this for twenty. (I learned my lesson a long time ago, you should use Attorneys and CPAs all the time.)

  • Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
    9y
    Ken Min Any specific reason why an LLC for investment properties is better over corps? I have specific reasons for needing a W-2 from a corp without working for someone else. We could always structure an LLC for investment properties under the corp can't we?
  • Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
    9y

    @Derek Wheeler : What I do Very Well is buy and sell properties "Subject To" with little or no down and and teach others to buy and sell properties "Subject To" with little or no down. What I do horribly is taxes and entities. No reflection on you, but they bore me to tears. If you want to see a grown man cry, make me figure out entities and taxes. I don't know why my Attorney in Scottsdale, who is also a C.P.A. and invests in real estate and my Attorney  and C.P.A in Austin who both invest in real estate tell me Not to use a Corp. but I pay them big bucks to keep me profitable and out of trouble. At meetings I've held, they talked my students in AZ and TX out of using Corps. I don't borrow from banks (have no need to, I do "Subject To") so maybe your needs are different.  But, I would definitely discuss it with a C.P.A. and Attorney before I got too far along. Some points: Cost of Forming a Corp, Taxation, Reporting, (lots more paperwork), lots more taxes, and did I mention lots more paperwork? Plus it has something to do with liability as I recall. But my mind was wondering about sailing or something like that as they droned on. 

  • Flipper/Rehabber · Lehi, UT · Member since 2016 · 86 posts · 64 votes
    9y

    @Derek Wheeler I'm a CPA full time and also invest in real estate so I might be able to provide some clarity here. What I would recommend is starting an LLC (for asset protection purposes and ease & flexibility in business operations) then elect to be taxed as an S-corp.

    If you started a corporation or "C-Corp" then elected to be taxed as an s-corp you would get the tax benefits of an s corp but then you'd have to deal with ongoing filing and record keeping requirements. As an LLC, the rules for maintaining the LLC are much less rigorous. It is also usually less costly to set up an LLC

    It's pretty common for real estate investors to start an LLC then elect s corp status. Unless your planning to take your real estate company public with an IPO someday, I would recommend starting LLC then electing s corp. This is just a quick summary but, hope this helps.

    I also have a bookkeeping business where we handle the books using quick books or xero. We'll be taking on new clients in the near future if that's something your interested in. Always nice to have your books in order come tax time ;) It's also much nicer to run your business with an accounting software rather than excel spreadsheets. The software goes a long way in saving you time and energy and making everything nice & clean. 

  • Investor · Minneapolis, MN · Member since 2016 · 139 posts · 143 votes
    9y

    General rule is to never have real estate in a Corp although there are some exceptions with investors who flip due to tax rates etc. One big reason is that if there is a distribution out of the S-Corp it is treated as coming at FMV and not basis as is the case in an LLC taxed as a Partnership. I could go into a lot more depth here but bottom line is that I would definitely consult a CPA who can go over things you might not think about ahead of time. Being proactive saves big dollars in the long run.

  • Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
    9y

    @Account Closed : Thanks for the info, Kyle. I understand the upkeep of a Corp is more rigorous. We aren't wanting to really use it for investment purposes, but to flow our real estate sales commissions through and turn them into W-2's for personal reasons. Once we start investing, we'd probably just structure an LLC for the investment properties and keep our real estate sales commissions separate.

    Basically, we need the corp for W-2s. We are working on rebuilding our credit, as we were hit with some major medical expenses from our first baby having health issues very early on in her life, and we had to survive off of our salary income mixed with credit cards. And since we are both real estate agents now, we are considered self-employed and have no proof of income. We are trying to repair our credit and structure our real estate careers into such a form that we can purchase a multi-family home with a FHA 203k for our initial investment properties in about a year or so. But, as you all know, without proof of income and working under 2 years this way, it is extremely tough to get a loan from any bank.

  • Flipper/Rehabber · Lehi, UT · Member since 2016 · 86 posts · 64 votes
    9y

    @Derek Wheeler Got it. Your part of the few people that actually want to show more income haha. So as long as your entity elects to be taxed as an S-corp then you would issue W-2s. Even if you set it up as LLC and then elect to be taxed as an S-Corp you would issue W2s. The way it works is, you as an owner decide what a "reasonable salary" is and pay yourself from the S-corp. On that income you would be subject to Social security and medicare taxes (payroll taxes) and federal & state withholdings. You would most likely also have to make quarterly payments and quarterly filings (forms 940, 941, etc). Any income that you do not pay out as wages (your reasonable salary) would come to you as "distribution to owners" which is not subject to payroll taxes.

    So i like the set up as LLC then elect S-Corp strategy the best. Ease of organization, and you can save on payroll taxes if you want. Or you can just pay out all the company's earnings as Wages in order to show more income. Banks should take into consideration your distributions too though, however I know they probably like W2s the best. Stupid Banks :)

  • Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
    9y

    @Kyle Pierce Awesome info! I didn't know that if you tax an LLC as a S-Corp, you can pay out salaries. I did read that as of around 2010 the IRS decided to start creating "reasonable salaries" for certain jobs within corporations, due to many deciding to not take a salary but taking their pay in distributions from their corporation and not paying payroll taxes on their income. I've been keep money out of each commission to pay our quarterly taxes. I'm holding back a little more than I read up we need, just in case. But the "just in case" part is what is making me think that I will be consulting a CPA and using QuickBooks a lot sooner than expected. Thanks again for the information.

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Derek Wheeler:
    Originally posted by @Jeff B.:

    It's an extremely bad idea to form an entity and pay yourselves w2 wages...

     Don't most people form a corp to give themselves salary pay? We were trained from a few classes @ Keller Williams to form entities to help reduce our taxes. I want to utilize an S-Corp to supply ourselves with a steady income from what our commissions, and the rest of it will be held in a AAA account. Why is paying yourself a w2 wage a bad idea, if you report everything appropriately to the IRS?

    Double taxation; Once as a Corp and again on the W2 income. The LLC, declared as an Ignored Entity avoids this problem - - hence the suggestion for a Financial Consultant.

  • Real Estate Agent · Terrell, TX · Member since 2017 · 36 posts · 14 votes
    9y

    S-Corps (which I talked about wanting to create in my original post) are taxed like LLCs. They are pass-through entities. 

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