When most people think about tax preparation, it feels complicated and daunting, but everybody needs it. In a perfect world, everybody wants a tax preparer who will do their job so well that they don’t have to pay any income tax. It’s not a perfect world, but the tax preparation market is all about finding ways to maximize tax savings.
But that can be bad for real estate investors. Tax preparers are going to look into the performance of your business and start making deductions to get the tax liability as close to zero as possible. If you’re not working with someone who specializes in tax preparation for real estate investments, there’s a good chance they will overlook what matters to the bank.
So now suddenly you have an asset that isn’t producing any income, and you don’t owe any taxes. Then you turn around and ask the bank to refinance, but you’re not showing any income, which means that they can’t loan you any money.
You need someone who understands that the real estate investing market is a little different when it comes to income and taxes. Otherwise, you’ll have to explain to your tax preparer that you really need to show this much income on your properties so that they look like they’re performing at a level where you can refinance.
Bankers want to see income, and tax preparers want to reduce your tax burden. And for it to really work, you have to be looking at both things together. You can have all the tax planning and all the bank planning in the world, but if you’re not doing them at the same time, things will get missed.
There are many tax professionals who specialize in different areas. Some specialize in restaurants, while others specialize in the medical field. Still others specialize in real estate, and that’s who you need to be talking to.
Whenever you want to fulfill your dream of becoming a real estate investor, you’ll need to provide documentation quickly. A small independent firm can do that much better than a tax preparer who’s part of a large nationwide network in most cases. You need somebody who not only understands the tax liability issue, but also someone who can deliver the right documents to help you pull hundreds of thousands of dollars of equity from your business.
It’s critically important to find a team of people who truly specialize in real estate, who understand the balance of banker’s needs and tax liability, and who know what’s necessary for you to make a profit in business rather than simply save on taxes.