While working with your CPA and financial planner regarding your financial future, you also need to figure out how you want to structure your business for the long-term. In what types of entities are you going to hold your long-term properties? Are you going to take them in land trusts first? How about the “flippers” you intend to sell right away? How about your everyday expenses and operating costs? If you have a vacation home, what is the best way to own it and use it in order to get the best tax advantages? Do you want to rent it part of the time or that is uncomfortable for you? These are all matters you need to discuss with your CPA in order to come up with a plan that works best for you and your personal situation. Make sure you find someone who is educated and creative and has your best interests in mind.
If you are going to be a land lord and keep rental properties, what kind of tax advantages are there? What expenses do you need to keep track of? If you have losses this year that you don’t need, do you know you can carry them over to the next year? What is the depreciation timeframe on a rental property? How much time do you need to invest on a yearly basis in real estate in order to be deemed an “investor” under tax law? What is the difference between a repair and an improvement to a property? These are all things your CPA should help you to understand.
You also need to discuss asset protection and long-term growth, along with retirement. Many CPAs who are experts in real estate usually have other people in their office who can handle the other various aspects of your business, such as the day to day bookkeeping if you don’t have the time or the knowledge to do it, asset protection and retirement accounts and financial planning.
Once you begin to make a lot of money in the real estate business you will want to think of ways to invest your profits for your future, such as a retirement fund, a 401K and a Roth IRA. Basically, once your cash flow needs are met, you can start funding deals into your Roth IRA for long-term investment tax free. Just remember, you can’t touch this money without penalty until retirement. So you just need to figure out what portion of your income you can save each month. This is usually based on the salary you receive from your business.
Before making any large expenditure like a car for example, you need to get the advice of your CPA in order to get the best benefit possible tax wise before purchasing it.
You need to decide if you are going to have employees or if the people who will work for you will be independent contractors. And if they are going to be independent contractors you need to make sure you get the right paperwork filled out. What about hiring spouses or children; is that legal? What about deducting medical expense and what about medical plans such as Health Savings Accounts (HSA’s)? Can you implement these in your business? These are all good questions for you to ask your CPA. And based on your personal situation, your CPA should be able to help you with answers to these important questions.
As I have said from the onset of this article, your CPA is going to be an integral part of your businesses success so it is important to find the right person early on in your business. Make sure you find the person whose goals and attitude about your money and your business match your own beliefs since this person is going to pay a major role in helping you to secure your financial future.