In this episode, I interview Brian Borawski. Brian is a CPA and tax specialist who cut his teeth early on in his career at some of the larger tax firms and REITs in the country. Brian is a really smart guy, who also happens to be my tax consultant and CPA. I had a lot of fun during this interview, and Brian really brought the goods and gave everyone a lot of good insight into small business accounting and some of the things that you need to watch out for when setting up and running your real estate business.
One of the pieces of advice that Brian gives is not to go “entity crazy”. By that, he means forming way too many business entities for your business. For example, sometimes you will hear people say that you need to form a new LLC for every rental property you own, or that you need a C Corp. for this part of your business and an S Corp. for that part, and an LLC for this part… Essentially, Brian recommends that you keep it simple in the beginning. Talk to a CPA and talk to a lawyer. This podcast is not about giving legal or tax advice for your specific situation; you should definitely do your own homework. But the take-away from this is that you don’t always need to form a ton of different entities.
Real estate investing definitely has its advantages. One of the biggest advantages for landlords is depreciation. Brian pointed out that landlords who have rental properties that are leveraged and who also have the benefit of depreciation, might have virtually no tax hit on the income they make from the rental property. Again, everyone situation is different, but depreciation plus financing on a rental property is a great tax advantage in most cases.
One of the issues that Brian sees with small businesses and real estate investors is that they do not stay organized during the year. When tax time rolls around, they’re trying to dig up a lot of information, and it makes it much more difficult on the business owner, but also much more difficult on the CPA/ tax preparer. The more difficult you make it on your tax professional, and the more time they have to spend trying to organize a mess of receipts that you hand them, the more it’s going to end up costing you.
Brian also breaks down some of the tax advantages and characteristics of a C Corp., an S Corp., and an LLC.
Finally, Brian breaks down the criteria used by the IRS to determine whether or not you are considered a real estate “dealer.” The rules regarding this are somewhat vague, but Brian breaks it down and makes it a little easier to understand.
quickbooks.com – quickBooks can help you organize your tax information and submit to your CPA
dropbox.com – File sharing