Structuring and Protecting Your Entity
If you are setting up a real estate business for the first time, a CPA can help you to select the right structure for your entity depending on the number of investors that you have, the properties that you are looking into acquiring, and the amount of capital that you are looking to invest.
Different entity structures offer various levels of financial protection for investors and tax benefits. A large real estate entity may prefer to be structured as a real estate investment trust while a small entity may be better as an LLC. A CPA who specializes in real estate companies can help you to best structure an entity that fits the needs of your entity effectively.
Financial Reporting and Managerial Reports
CPA firms may help an organization to develop a structure for creating financial statements and managerial reports to provide to investors and management in order to assess how the real estate business is performing and to identify key performance indicators to help the entity profit. This often starts with helping the entity to capture the appropriate financial data in their accounting software, whether this be QuickBooks or a more robust accounting software and helping to craft a chart of accounts to capture and report on the company’s performance.
Certain ratios and key figures may tell an organization how they are doing. For real estate entities different metrics like the percentage of units leased, average lease price, monthly recurring revenue, debt to asset ratios, among other ratios would help a real estate company’s management effectively make financial decisions. A CPA firm can help a real estate company identify the factors that are important for their business and drive its success forward.
A good CPA firm may be able to assist a real estate company with acquiring properties and other entities and doing due diligence on these acquisitions. Some can also help review purchase agreements and identify compliance issues, though you will certainly want to retain a real estate attorney as well.
Tax Planning and Compliance
Tax planning goes beyond simply setting up an effective entity structure. Different transactions including buying and selling real estate can have a significant impact on the taxes paid on the transaction. A CPA with real estate experience can help to select an appropriate structure for various transactions to minimize the overall tax bill.
Real estate entities will need to file tax returns, just like any individual or business does. A CPA firm can help you to do so and make sure the forms are appropriately filled out. There is more to tax compliance than simply completing your entities income tax returns and a CPA firm can help with providing information to investors for their tax needs and in meeting the needs of other regular tax filings.
Audits and Compliance Measures
Some real estate entities, particularly those who borrow significant amounts from banks, need to have financial statement audits or reviews conducted by an independent CPA firm. As part of the compliance needs of your lender, a CPA firm can attest to your financial statements and help to meet this requirement by your lender.
Some real estate businesses are audited by the IRS and various states and municipalities. A Real estate accountant can help to represent you during these audits and reduce the fines and findings that these entities may have.
Finding the Right Real Estate CPA Firm
There are many different CPA firms that are out there from sole proprietorship to the Big Four. Finding the right size firm can be challenging as can finding one with the right level of experience in real estate. To do so, consider asking the following questions:
- What are the specialties of your firm?
- How many CPAs are on staff?
- How many real estate clients do you have?
- What is the largest and smallest real estate clients that you have?
- Do you have dedicated personnel for tax and audit work?
- Have you assisted companies on due diligence?
- What type of tax planning services does your firm offer?
Use the responses to these questions, along with your general impression of the partners you meet to assess the quality of the CPA firm. Keep in mind that you are more likely to interact daily with a senior or manager than a partner and ask to meet the individuals who would be assigned to your account, keeping in mind that many CPA firms have high amounts of turnover.
A real estate CPA can provide an invaluable service for your real estate business and can help to keep your entity effectively structured for tax purposes, can provide you with information to make appropriate financial decisions effectively, and comply with governmental and tax reporting needs. Take care to choose the right one as it can have a profound impact on your real estate business.