All Forum Posts by: Alan Rohrer

@Robert Watts - These days, it's far more important to find a CPA that specializes in real estate and you work well with, than one that is local. Pretty much everything can be done remotely.

However, for attorneys- definitely use one that is local, as they will be an expert in the more nuanced local laws.

@Robert Watts - You are definitely in the right place. There are many CPAs here (including myself) that work with clients across the country, so you're likely to find one that's a great fit.

I will mention that flipping homes are taxed at ordinary income rates rather than capital gains and are also subjected to the self employment tax. 

Because of this as you mentioned, it's great to speak with a real estate CPA that can help you navigate the tax code.

Best of luck on your search!

@Charquis M. and @Tyler Work

Forming an LLC is an asset-protection strategy rather than a tax strategy. Some get liability protection by putting 1 property per LLC (a little excessive depending on their value- just my opinion... but if it helps you sleep better at night, some do it). Some have a limit like $1 million of assets per LLC. Others keep in their personal name and have liability insurance like @Mike S. has mentioned.

Depending on your personal situation, one (or a combo) of these might make sense for you. You will want to talk with an attorney in your city that can answer that question for you.

A few tips:

-Be careful if you ever transfer the home from your name to the LLC (or vice versa), as many mortgages have a due on sale clause that will cause the entire principal to be due upon transfer of the house.

-Do not flip houses in the same entity as you hold/rent. Not only is it not best for liability purposes, but they have significantly different tax treatments and usually benefit from different structures.

-Because an LLC is an asset-protection strategy and not a tax strategy, you won't be able to deduct any more or less expenses. (technically you can deduct the costs of forming the LLC- but that would be the only additional expense you could deduct)

-And finally to @Tyler Work - Your client likely had that issue because they weren't personally guaranteeing the mortgage. 

@Alfredo Martinez

@Ryan Saulle is right - Before the new tax law, this was a little easier to answer. LLC electing S-Corp status is usually beneficial when flipping houses, but be careful that your CPA helps you with the "reasonable compensation" aspect- as that would be the main audit risk. Also if you run other businesses, a different structure might be more helpful.

Currently, seeing that the corporate tax rate was lowered significantly, depending on how much profit you want to reinvest in the business, an actual corporation may have some benefits as well.

I'll say that generally an S-Corp would be the way to go, but there may be situations that make a corporation tempting.

Be sure to work with a CPA that knows your specific situation.

@Brian Schmelzlen is right- the fees would be reasonable if you use them.

An accounting firm operating like a local gym in this case isn't the best option in your case. There are a lot of benefits of a monthly "retainer" but that's when you have more ongoing/complicated activities that require ongoing accounting and tax work.

@Michelle Bright

Congratulations on the growth! These days, CPAs don't need to be local, as pretty much everything can be done over the internet. I'd recommend finding a CPA who is a great fit vs someone who is local. BiggerPockets is a great place to start the search! However, if you find someone who is a great fit and local, by all means go with that if it makes you more comfortable.

You are right that your attorney should be local though.

You also bring up a great point- your CPA should communicate with your attorney whenever the need comes. A good real estate CPA will know how to manage the relationships between the various financial and legal professionals you work with.

Best of luck!

@Stephanie McKay - this will depend heavily on your situation.

In general- an LLC will not have a tax impact... it is mainly an asset protection strategy.

As far as an s-corp, it is not usually a good idea to hold rentals in one, as there are issues if your strategy changes in the future.

S-Corps may be beneficial if the income you are producing from real estate is ordinary income and subjected to self employment taxes (like flipping homes, wholesaling, property management).

Be sure to talk with a CPA that knows your entire situation before making this decision.

@Rebecca Cramer

Great questions to have early on!

For CPAs, location doesn't matter much- pretty much everything can be done virtually at this point. If you ever look for an attorney, those should be local.

Additionally, the more specialized someone is, the more value they can add. At the minimum, I'd recommend finding a CPA that specializes in real estate. They should have a solid working knowledge of the rules governing short term rentals. However, if you find someone that does JUST short term rentals, then by all means go for that.

You're right- many people will claim to be knowledgeable. A great way to filter out a "generalist" CPA would be to start your search here on BP. Most on here work remotely and specialize in real estate. You can also take a look at their website/LinkedIn profiles to see if they are marketing to the real estate industry... or to just anyone who will pay them.

Once again, great thought process as you're starting out and best of luck in your search!

@Christopher Howard

@Cathie Kovacs makes a good point that Quickbooks Self Employed is a very cheap option. However, once you expand and start needing a more robust accounting system, you can't upgrade to a higher version.

If you ever start using Quickbooks online, I'd recommend starting at least with "simple start"... that way you can upgrade later if you need.

At this point, you should be just fine with a spreadsheet. I'd do the following things:

1) Open up a new bank account (either for your LLC if you have one, or just another personal account) and run all your income and expenses through this. This way you will have everything in one place and can stay fairly organized.

2) Track your income and expenses on a spreadsheet and break them up into the important categories (rent, repairs, improvements, materials, utilities, etc.).

3) Once a month/quarter, make sure the transactions in your bank account match what you've recorded in your spreadsheet. This is called a "reconciliation".

4) Either keep or take pictures of all your receipts and write a little sentence on any that may require clarification in the future.

5) Keep a log of your miles. If you end up driving a lot, you might look into the MileIQ app... if not, a log of miles driven and purpose of trip will be fine.

That should get you started!

@Dustin S. - As with taxes, bookkeeping in real estate is best left to someone who focuses on real estate clients. It also depends on your activities. You say you currently own 11 properties. Are you also flipping any units? Self managing the properties? Improving the units?

These activities will all have various tax implications, and need to be recorded properly throughout the year (and a generalist CPA may miss something). 

As far as your questions @Jana Cain  is correct. The process of getting the monthly statements is pretty seamless, and usually doesn't require giving someone access to your accounts (instead, they will have access to the info through the accounting system).

I'd recommend starting your search here on BP. You'll know you are getting someone with a solid real estate background.

Finally, I would prioritize "fit" over location. These days, location doesn't matter much for a CPA. Like Jana, many on here including myself work with clients remotely. So just make sure you feel you have a good fit with whoever you decide to work with.

Best of luck!