Accounting

4 Reasons to Hire a CPA for your Rental Business

April 25, 2023

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Why should you Hire a CPA for your Rental Business?

The DIY movement continues to grow in popularity across all industries. 

It makes sense; we have more information at our fingertips than ever before. 

That said, don’t let your independence prevent you from looking for help. 

Sometimes, especially for those of us who love doing things on our own, it’s incredibly beneficial to collaborate with others. 

One area where this is especially true is accounting for landlords. 

A professional accountant can do wonders for your business (not to mention your wallet). 

In this article, we’re going to look at four reasons you should hire a CPA for your rental business. 

1. Compliance 

Tax compliance is a crucial part of running a rental business. There are a lot of tax requirements and regulations that rental property owners must adhere to, and failure to comply results in penalties and fines. By hiring an accountant, you can ensure you’re meeting all your tax obligations and maximizing your tax deductions. 

There are various rental property expenses that you may incur as a property owner, including property maintenance, property management fees, mortgage interest, insurance and more. Not all expenses are deductible, however, and some must be depreciated over time. An accountant will help you accurately categorize your expenses, determine which expenses are deductible and figure out the appropriate depreciation schedule for your rental property. 

An accountant will also help you with tax planning. They can advise you on the best strategies for minimizing your tax liability and maximizing your tax deductions. For instance, an accountant may recommend taking advantage of tax breaks like the Section 179 deduction, which allows you to deduct the full cost of qualifying equipment and property purchased for your rental business. Similarly, they can help you structure transactions in a tax-efficient way to reduce your tax burden. 

An accountant also helps you with tax filings. They can prepare and file your tax returns correctly and on time, ensuring that you are compliant with all tax laws and regulations. They can also represent you during an audit, helping you navigate the process well. 

2. Budgeting and Analysis 

Financial management is a critical piece of running a successful rental business, and it involves tracking income and expenses, creating budgets, and analyzing financial statements. Accountants deal with these things for a living, so they’re adept at helping landlords manage finances more effectively by providing you with the expertise and tools you need to make informed decisions. 

An accountant can help you set up an organized bookkeeping system to keep track of your financial transactions related to your rental business. This will include rent payments, utility bills, maintenance expenses and property taxes. 

Accountants are also skilled at creating and maintaining budgets. A budget is a financial plan outlining your expected income and expenses for a specific period. A well-designed budget will track expenses, identify areas where you can reduce costs and ensure that you have enough cash flow to cover your expenses. 

An accountant can also help you analyze your financial statements like your income statement and balance sheet. These statements provide valuable insights into your rental business’s financial health (I.e., net income, cash flow, and assets and liabilities). 

Lastly, an accountant can help you plan for long-term financial success. They can advise you on investments, tax planning and retirement planning. 

3. Bookkeeping 

The foundation of good bookkeeping involves maintaining accurate and organized financial records. This includes recording all financial transactions related to your rental property, such as rent payments, expenses, repairs and taxes. A professional can help you build a system that makes it easy to track financial records over time. 

Accountants can recommend the best software or other tools that can streamline your rental property accounting. Furthermore, they can assist you as you develop a chart of accounts, which is a list of all the accounts you use to track your financial transactions. This chart typically tracks things like rental income, expenses and assets such as property and equipment. 

In addition to setting up your bookkeeping system, an accountant can review your financial transactions regularly to ensure that they’re recorded correctly and help you avoid discrepancies. You want to prevent costly mistakes, especially when it comes to taxes. 

Additionally, an accountant can provide support as you reconcile your bank and credit card statements. Reconciliation is the act of comparing your bank or credit card statement with your bookkeeping records to ensure that all transactions are correct and accounted for. Once again, the idea is to make sure there aren’t discrepancies or errors. 

A CPA can also help you prepare financial statements like balance sheets and income statements. These statements provide valuable insight into your rental business’s financial health. Your accountant can pull these reports regularly to help you track your financial performance, highlight areas where you can improve and make informed decisions about your rental business. 

4. Professional Advice and Long-term Planning 

Planning for the future is wise. That said, developing a comprehensive financial strategy are your own is a daunting task for anyone. A CPA will help you develop a financial plan that aligns with your rental business’s objectives and sets you up for long-term success. 

Investment planning is a specific area where a CPA is extremely useful. Depending on your financial goals, an accountant will advise you on investment opportunities that can help you grow your rental business’s wealth. This could be in the form of stocks, bonds, mutual funds or other investment opportunities that align with your risk tolerance and goals. 

Additionally, a CPA can help you plan for the long-term financial success of your rental business through tax planning. Tax laws are complicated, and they change often. An accountant can help you stay abreast of the latest changes when it comes to tax regulations and identify opportunities to reduce your tax liability. Strategies like deferring income, taking advantage of tax credits and structuring your rental business in a tax-efficient manner are examples. 

Beyond investment strategies and tax planning, an accountant can also develop a retirement plan that lines up with your goals taking your financial statements into account. They will probably advise you regarding retirement savings vehicles like IRAs and 401(k)s, estimate your retirement income needs and develop a plan to help you achieve your retirement goals. 

Finally, an accountant can help you develop a succession plan for your rental business if that is something you want. This is important because it sets your business up for continued success after you move on. This plan often includes strategies such as creating a trust, developing a buy-sell agreement or transferring ownership of your rental property to a family member or other party. 

Conclusion 

No one can be an expert at everything. And you’re a busy landlord with a lot going on. 

Hiring a professional accountant can save you valuable time and money. It may be a great move for your business, so do your research and consider it carefully. 

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