When Should a Landlord Hire an Accountant?

Whether you’re just starting as a landlord, contemplating a real estate investment, or have been renting properties smoothly, hiring an accountant could help you streamline your landlord responsibilities. 

How do you know when to hire a real estate accountant? 

This article will offer guidance on when a landlord should hire an accountant. We’ll also explain how a real estate accountant can benefit your rental property business. 

When a Landlord Should Hire an Accountant: Key Considerations

The answer differs for every landlord. However, you can consider the following factors to determine when to hire a real estate accountant. 

• Real estate portfolio size and diversification: Investing in multiple properties helps increase your rental income. Expanding your portfolio also increases your record-keeping complexity. Landlords must track the income and expenses of each property separately. If you own more than one property, consider hiring an accountant to help maintain accurate bookkeeping for your real estate portfolio.

• Administrative bandwidth: Many property owners rent properties to generate passive income and aren’t full-time real estate professionals. If you balance a career with your landlord responsibilities, you might be too busy to manage your real estate accounting.

• Property transactions: Purchasing or selling real estate generates complex tax and accounting consequences. Real estate accountants can support your financial statements and transaction reporting. If you’re considering buying or selling an investment property, consult professionals for tax advice. 

• Tax return complexity: Real estate investors must comply with federal and state income tax laws. Tax professionals help you navigate confusing rules and tedious forms. Accountants maintain timely bookkeeping to support your business during tax time. If your tax return preparation causes frustration and stress, you can save time and avoid penalties by hiring an accountant.

• Accounting software limitations: Depending on the complexity of your real estate holdings, generic accounting software might not support your business. Real estate accountants can offer specialized assistance and personalized reporting if your transactions or portfolio size outgrow your standard accounting software. 

Hiring a full-time accountant could be cost-prohibitive to many small business owners. Instead, you can outsource your real estate accounting to professionals. 1-800Accountant offers outsourced accounting, real-time bookkeeping, and year-round tax advisory services to support all your income streams. 

6 Ways a Real Estate Accountant Can Benefit You (And Your Rental Income)

1. Assisting with Entity Creation and Structuring

Accountants can guide your business through tedious paperwork for your business entity formation. Your accountant can help you understand the differences between various legal entity types and determine the most advantageous business structure. 

Consider hiring an accountant for entity formation advice and administrative support. 

2. Property Income Management

Landlords with multiple tenants must monitor rent payment due dates for all renters. Fortunately, real estate accountants can help landlords manage their rental income cash flow.

Your accountant can support the following property management activities:

• Charge interest or fees for late rental payments

• Collect, record, and refund deposits

• Remit property taxes, HOA dues, and utility fees

3. Maintaining Timely and Accurate Bookkeeping

An accountant can help your real estate investing business by managing numerous record-keeping activities. The following list includes examples of tasks a real estate accountant can perform.

• Record rent payments and security deposits

• Track income and monitor cash flow

• Analyze profitability

• Perform bank account reconciliations

• Prepare financial statements

• Assist with financial planning and reporting

• Maintain accurate financial records

When you hire a real estate accountant, you can offload tedious tasks and free up valuable time. You’ll gain confidence in your bookkeeping and financial reporting.

4. Monitoring Expenses and Maximizing Tax Deductions

Your accountant can help you track and categorize rental property expenses, such as the following: 

• Depreciation expenses on buildings, equipment, and furniture

• Property maintenance and renovation costs

• Mortgage interest

You can lower your tax bill by maximizing business tax deductions from your real estate business. Real estate accountants help identify tax write-offs for your business return.

5. Preparing Business Tax Returns

Most small business owners file IRS Form 1040, Schedule E, Supplemental Income and Loss, to report real estate rental income. Your accountant can help you prepare your tax return and navigate tax season. Real estate tax professionals generally offer the following services.

• Preparing and filing tax returns

• Calculating business tax liability

• Monitoring tax law changes

• Corresponding with the IRS

• Providing tax advice

• Reporting rental property sales and capital gains

Gain confidence in your compliance by consulting a real estate accountant for help with your business tax filings.

6. Tax Planning

Landlords should consult accountants for real estate tax planning. 

Real estate accountants can help investors lower capital gains taxes on property sales. Additionally, accounting professionals can determine taxpayer-friendly locations for property purchases. 

Efficient tax planning can help property owners achieve short- and long-term tax savings on transactions. 

Real Estate Accountant vs. Real Estate CPA

How do you know whether an accountant or a CPA is right for your real estate business?

A certified public accountant (CPA) license is a professional certification requiring a college-level education, industry experience, and a passing exam score. CPAs generally achieve specialized knowledge beyond general accounting principles.

Accountants without CPA licenses can perform numerous accounting services but cannot represent taxpayers in IRS examinations.

Advantages of Hiring a Real Estate CPA

CPAs often obtain advanced degrees, such as a Master’s of Accounting or Taxation. A real estate CPA can generally handle complex transactions and financial reporting requirements. The advantages of hiring a real estate CPA include specialized knowledge and the ability to communicate with the IRS during audits.

However, CPAs charge higher fees than accountants due to their extensive experience, rigorous licensing process, and specialized knowledge.

Advantages of Hiring a Real Estate Accountant

Professional accountants typically hold undergraduate accounting degrees and understand generally accepted accounting principles (GAAP). Accounting professionals can specialize in an industry or practice area.

Accountants often charge lower fees than CPAs. Your business can save professional fees by hiring an accountant without a CPA license.

However, your business should understand the limitations of an accountant’s professional responsibilities.

Should You Hire an Accountant or a CPA?

The best support for your real estate business depends on the services you need. 

For example, if your real estate portfolio includes a small number of properties, minimal transactions, and routine income, an accounting professional can likely support your business. 

However, consider hiring a CPA if your real estate investment business has unfiled tax returns or faces an IRS audit. Professional CPAs can better guide your company through IRS correspondence and penalty abatement. 

Schedule a call with 1-800Accountant for guidance on the best solution for your real estate investment portfolio.

Choosing the Right Accountant or CPA for Your Rental Property Accounting

How do you decide on the best accountant for your real estate business?

Property owners should evaluate multiple factors to determine the best accounting solution. For example, review the size and complexity of your real estate portfolio. Diverse property ownership and expansion plans require an accountant with extensive real estate experience. 

Additionally, consider the accountant’s industry expertise. Accounting for real estate often requires knowledge of dynamic state laws and regulations.

Invest in Your Peace of Mind with 1-800Accountant

1-800Accountant offers accounting and bookkeeping services for landlords and real estate investors. Industry specialists help you navigate complicated rules, meet tax return deadlines, and maintain accurate financial reporting.

Tax professionals at 1-800Accountant offer year-round advisory and financial planning assistance. Maximize your business tax deductions and enjoy a smooth tax season with support from professional accountants.

Schedule a free consultation with 1-800Accountant for personalized real estate investment advice.