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BATTLE OF THE BREWS
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APRIL 2016 • VOLUME 20 • ISSUE 11
Is it really worth hiring certified public accountant? By Riki Markowitz
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here comes a time in every professional’s life when he or she contemplates whether hiring a professional accountant is necessary. Unsurprisingly, this question comes up more from those in lower income brackets because there’s less money to spare on what can seem like an extravagance, especially since there are so many sophisticated, seemingly easy to use tax software products on the market. But when RLA asked a few local CPAs if they thought real estate professionals should hire an accountant, without hesitation, they all answered, “Absolutely.” According to Aaron Farmer, the 2016 Austin Board of REALTORS (ABoR) president,
most REALTORS in Texas are independent contractors, which means that they’re responsible for paying their own taxes. Even if an agent has business cards with the name of Austin’s largest real estate company stamped at the top, as long as that individual fills out a 1099 (not a W-9), he or she is responsible for filing and paying his or her own taxes. “Independent contractors are obligated to pay income taxes and self employment taxes, which includes social security and Medicare, among others. So if you’re in the 28 percent bracket, earning around $60-80k per year, that’s about 35 percent to 40 percent of your income,” says Barbara R. Prashner, a CPA (certified public accountant) with 25 years experience. “Taxes are the biggest expense of your lifetime.” For any other transaction that large, who wouldn’t hire a professional guide them through the process? Hiring a tax professional is actually more crucial for agents who only earn enough on the few deals they close per year to get by. One big reason to work with a CPA is because of how much money it can save in the long run. “When you’re looking to shave a little bit off every year over the course of your lifetime, that’s the difference between a nice retirement and a not so nice retirement,” says Prashner. When you hire a CPA, not only can you rely on an expert to prepare your yearly return, but he or she will also be sure you’re taking advantage of every deduction you’re entitled to.
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How much? The number-one reason why people pass on hiring an accountant is cost. For every average-earner, every penny saved is a penny earned – and one you will owe taxes on. So it’s not surprising that the first question most accountants hear from new clients is “How much?” Unfortunately, there is no easy answer to this question. “I can generally provide a fee range after I consult with a potential client,” says Prashner. But unless she knows a few keysfacts above and beyond gross income, “there are too many variables.”
Finding the right CPA In most fields, a consumer can compare
prices and services. For accountant shopping, it’s not that simple. So rather than looking for the CPA who has the best rate structure or most Yelp stars, Farmer has more of a processof-elimination philosophy. An accountant who promises specific costs or refunds without knowing anything about your earnings is a red flag. “Also, be very wary of anyone who tries to sell you on schemes or structures that guarantee big savings or profits.” Getting a referral from two or three trusted colleagues is how most folks – in any industry – find a knowledgeable CPA in their preferred price range. Farmer adds that it’s best to find someone who dedicates a portion of their practice to full-time real estate professionals because he or she will be more familiar with tax laws for this industry.
You have an accountant, now what? Just because you’ve hired a CPA does not mean you’re off the hook when it comes to managing your financial records. Handing your tax preparer a shoebox of receipts can increase your document preparation costs, but also neglecting to provide certain receipts and paperwork puts you at risk for disqualifying yourself for a long list of deductions that you’re entitled to. A deduction is an expense that lowers your taxable income. So if you pay $650 for your brand new Texas real estate license, your accountant will deduct that amount from your taxable income, thereby reducing the amount of money you will be taxed on. By overlooking a deduction, you’re essentially allowing yourself to be double-taxed on that item. Some of the most common deductions agents and brokers can claim are commission income; expenses for advertising and promotions; vehicle expenses, including repairs and insurance; your business license and professional fees; and a variety of equipment costs, from your internet connection to your tablet. But there are many more deductions that agents don’t even realize they qualify for. Farmer said he knew a group of agents who
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Upcoming Events Wednesday, April 20 CRS Bi-Monthly Meeting & Education Class - Westwood Country Club 11:30 a.m. to 1 p.m. Wednesday, April 20 AYREP Networking Happy Hour Shiner's Saloon - 5:30-7:30 p.m. Saturday, April 30 Belterra: Battle of the Brews & Model Home Tour - Belterra - 12-4 p.m. Monday, May 2 ABoR: Most Worthy Citizen Award Luncheon - ABoR HQ - 11:30 a.m. to 1 p.m. Thursday, May 5 ABoR: TREPAC Movie Night Bob Bullock Museum IMAX Theater 5:30-9:30 p.m. Monday, May 9 AMBA: Annual Mike Carroll Spring Golf Tourney - Great Hills Country Club 11 a.m. to 8 p.m. Wednesday, May 18 HBA Lakeway/Bee Cave Chapter Social Frogpad Showroom - 5-6:30 p.m. Wednesday, June 1 WCREALTORS: TREPAC Cook-Off Location TBA - 2-6 p.m. More at www.myRealtyLine.com