New Clients

Over the last year, many real estate investors have asked whether we are accepting new clients.  As of July 15^th, 2006, we are have established a waiting list for all new clients and tax services.  To be added to this list, and to check services that are available immediately please contact the office from 9:00am EST – 4:00pm EST Monday thru Friday,  Or please email your name and contact information to Gesika@ameritech.net and the services you will be needing titling it Waiting List. You will be added to the list by date, in a first come, first serve order.  This list is reviewed and updated and frequently.  Please understand while at this point, the wait time is unclear but seems to be approximately 3-6 months, depending on services needed.  Your business is important to us and you will not be forgotten.

 The purpose of this article is to answer the questions that many new clients have. 

Why hire us?

What services do we offer?

How much does it cost?

How Do We Get Started?

Why hire us?

As we pointed out under “Why me?” on the homepage:

1)  I am an attorney, meaning I think like an attorney.  I read the law and attempt to zealously find the best result for my clients AND remain within the bounds of the law.

2)  I am an accountant.  I think in numbers and understand the importance of good and thorough records. 

3)  I am an active real estate investor.  I understand the practical reality of investing (e.g. – tenant & contractor problems!) first-hand.  Also, you won’t have to teach me what a “lease-option” is (among other things) whilst I bill you for the privilege. 

And by the way, the “why me” solipsism on the home page will soon change to “why us”, reflecting the fact that I have hired staff to help me provide far better service.  Demand for tax advisors who know real estate has grown to the point that I need help to keep up with the demand.

What services do we offer?

We offer the following services:

1)  Tax Planning

2)  Bookkeeping

3)  Tax Return Preparation

4)  Audit Representation

5)  Entity Selection and Set-Up (In OH and states that do not deem that the practice of law)

Tax Planning

• When do C corporations save you a ton of money (Nevada hucksters say "always")...and when do they cost you a ton?

• Is your swimming pool deductible?

• Are you really squeezing the most depreciation and expenses out of your rentals?  You are depreciating the sidewalks, sewer pipes and bushes, right?

• Should you lease or own your vehicle?

• Are you taking vacations tax-free?  Why on earth not?

• Is the IRS paying its fair share towards your retirement?

• How can you minimize social security taxes?

• How to depreciate wiring and plumbing in certain buildings over five, instead of forty, years.

• Are you aggressive enough on your tax return?

• Why owing the IRS money after an audit is a good thing.

These are just a few of the questions that I answer all of the time.  The answer to any one of these questions (there are lots more where they came from) can easily save you many times my annual fees.  For clients that negotiate a package deal (i.e.- I do your returns and answer all Q&A for a year at a fixed price), I ask and answer these questions...makes a difference if you do not what to ask (the law is way too complicated for most people to know what to ask).  How many times has your current advisor come to you with tax savings- without being asked to do so?

Book-Keeping

I cannot emphasize enough:  IF YOU HAND US POOR RECORDS AT THE LAST MINUTE, YOU WILL NOT LIKE THE FEES WE CHARGE, THE AMOUNT OF TIME IT TAKES TO COMPLETE YOUR RETURN, OR THE IMPOSSIBILITY OF PROPERLY PLANNING FOR TAX REDUCTION. 

Handing us poor records (the proverbial shoebox) or anything short of a good income statement and balance sheet at the last minute will directly cost you in five major ways:

1)  We will charge to organize things – and you will probably be unpleasantly surprised at how long it can take to do that. 

2)  We will take much longer than you’d like to do it, because many review iterations and multiple phone calls are usually necessary.  A lack of records means a lack of timely tax returns – and a lack of timely returns means penalties and interest to the IRS.  It also makes obtaining loans difficult, tardy and expensive.

3)  We cannot engage in any serious tax planning without good books and records.  That means you will probably pay more in taxes than necessary.

4)  A much higher cost of poor records is incurred upon audit.  The IRS’ #1 weapon is poor record-keeping by taxpayers.  When audited, taxpayers with lousy records or substandard books lose billions of dollars in legitimate deductions every year.  If taxpayers cannot prove what their income and deductions were, the IRS will determine such numbers for taxpayers.  Here’s a big surprise (Not!): the IRS tends to guess high on income and low on deductions- and the courts usually back them up.  To add insult to injury, taxpayers pay automatic penalties and interest for failure to keep adequate books and records.  The best tax planning from the most aggressive advisors is worthless if a taxpayer cannot convincingly and accurately demonstrate his income and deductions. 

5)  Finally, and most importantly, the books tell the story of your business- that’s why they’re called “the books”.  No matter how good your “gut feel” for your business’ performance, if your books are not properly kept, you do NOT know how your business is truly doing.  It is inconceivable that a business owner could make informed decisions without knowing his business’ assets, liabilities and income.  Taxes are moot if the business makes no profit due to poor or incomplete information. 

Bottom line:  Consistently good business can only flow from good information, and good information flows from good book-keeping.  Lousy books increase professional fees and taxes- or make those expenses moot by killing the business altogether.

There are several means of getting it done the right way:

·         Do It Yourself:  For do it yourselfers, see our “Products” section.  The Real Estate Investors KISS Guide to Bookkeeping will teach the average person (that is, someone without a clue as to accounting, taxes or QuickBooks) how to efficiently keep fantastic books for real estate using the QuickBooks program sold separately by Intuit.  We can of course review any books that you assemble (for a fee, of course!) to ensure that they are correct.

·         Hire Us: We provide bookkeeping services.  We can take your primary documents (e.g. – checks, bank statements, etc.) and convert them into proper books (income statement and balance sheet for each property and the company as a whole).  We are particularly good at giving investors a “fresh start” by taking months or years worth of records and getting them in order – IF we receive said records in a timely manner.  Such tasks can easily take several months due to lots of questions that require repeated contact between you and the office.

·         Hire Someone Else:  This can work out really well or really badly.  The upside:  You can probably find someone who is cheaper than we are for bookkeeping services.  The downside:  Few bookkeepers know real estate the way we do.  All too many of them foul up the books.  I’ve seen it all too many times – the “cheaper” people bills LOTS of hours and ultimately provide an inferior product.  “Cheaper” often costs more!  One approach that seems to work well:  We get your books in order and set a template for a cheaper, local bookkeeper to follow.  We periodically check their work.  That seems to be an economical approach, particularly if you can find a talented accounting student who will work for relatively modest wages.

Tax Returns

We prepare federal and state income tax returns for individuals, partnerships and corporations throughout the country, as well as gift and estate tax returns.  This service is pretty straight-forward and extremely important- we get them done correctly and on time – IF WE RECEIVE GOOD AND TIMELY RECORDS FROM YOU. 

Audit Representation

The chances of an audit are extremely unlikely.  Obviously, if one does occur, you should take it quite seriously.  In general, non-professionals should not appear in front of the IRS.  There are too many ways to inadvertently slip up, even if you’ve done nothing wrong in fact.  Our goal in an audit:  Finish it as quickly and cheaply as possible.  If you have kept solid records and interpreted the law reasonably (even if aggressively), the odds are on your side.  It may take some time and persistence to prevail.  Sometimes, it makes more sense to settle and pay a modest sum that you technically do not owe than it does to fight and “win”.  Sometimes you need to dig in your heels and fight an obstinate agent….such people exist in all organizations, including the IRS.  The bottom line:  We know the tax laws, particularly as they relate to real estate investing.  If there’s an argument to be made, we’ll do it tactfully, but firmly.  If we need to push back against an unruly agent, we’ll do it.  And if there’s a way to reach a settlement that is ultimately cheaper than paying us to fight for hours and hours, we will seek it.

Entity Selection and Set-Up

Most entities provide roughly comparable levels of asset protection.  However, each entity provides a distinct set of tax consequences.  As such, choice of entity is primarily a tax-driven issue. Before establishing an entity, your tax and financial picture should be reviewed in detail.  Contrary to the assertions of many real estate gurus, one size does not fit all, especially where flipping and rehabbing are concerned!  We can help you review your tax and financial details to select the entity or entities best for your real estate business.  In most states, we can also set up the entity for you.  Crafting the right tools for the job is of extreme importance.  All too many “asset protection specialists” (especially those out of Nevada) suggest complex structures that cost you a lot (and make them a lot as a result) but really add little in the way of protection or tax benefits.  Sometimes complex out-of-state entity structures are appropriate for small business.  More often, they are not.  Talk to someone who will level with you!

How Much Does It Cost?

Consulting:  I currently perform all tax planning and consulting personally.  I bill by the hour at $225/hour.  This task rarely takes more than a few hours per year, as I have heard most of the questions that apply to small/medium sized RE investors and do not generally need to perform much in the way of research.  If we are also doing your returns and/or books, there is some efficiency involved, because we are already familiar with your financial picture.  For esoteric situations or unusual questions, some research may be called for.  We do not bill for research unless first cleared by the client.

Bookkeeping:  Generally billed at $49/ hour.  I review what goes out the door at $225/hour.  Once we’ve been doing your books for a month or two, my time is generally quite minimal.  The better your basic documentation, the less time required and the cheaper the ultimate bill.  Ideally:

• You write checks or use credit cards for all expenditures, excepting tips and taxis.  Paying with cash makes bookkeeping and audits much less pleasant (e.g., much more expensive) for you.  In the event that you do pay cash, please get receipts!

• The checks should have a memo explaining what the expense was for, and which property or properties were involved.  Likewise any non-check items on the bank statements (e.g. – debit card transactions, electronic funds transfers) should have notes telling us “what for” and “which property”.  Ditto for credit card statements. 

• Any money received gets deposited into a bank account.  Your deposit slips should have a brief description of each check, money order and cash amount deposited.  For example, we should be able to see each tenant’s rental check on the deposit slip, line by line, with a description of who, where, when & how much (e.g. – Bob Jones, 533 Maple, $550, November rent).  Abbreviations are fine if logical & consistent (e.g., BJ Maple Nov. $550).

• We generally expect to see:

  • Monthly bank statement;

  • Monthly credit card statement;

  • Copies of checks;

  • Copies of deposit slips;

  • HUD-1’s or the equivalent for purchases & sales of properties;

  • Terms of any loans (interest, term & principal, escrow amounts)

• We spend 1 to 3 hours per month on the “typical” investors’ books, assuming that we get what we asked for above.  The first few months require greater time, as we get to know the business and interact with the client for the first time.

Tax Returns:  Generally billed at $65/ hour.  I review what goes out the door at $225/hour.  ½ hour to an hour review on my part is typical.  Factors that influence the cost of your return:

• Records:  The time needed to prepare a return turns heavily on the state of your record-keeping.  If we receive properly organized QuickBooks files that have an income statement and balance sheet per property, the returns can generally be completed in short order.  If, on the other hand, we receive the proverbial shoebox, we must complete your bookkeeping before preparing the return.  If you do not have your records in QuickBooks, the next-best solution is to fill out this business return questionnaire.  Either way, you should fill out this personal return questionnaire to help us complete your Form 1040.

• Complexity:  Different kinds of RE activities give rise to different sorts of return issues.  Some typical investor activities follow, in order of complexity, from simplest to most complex:

  • Assigning Deals/Bird-Dogging  – finding deals and selling them to other investors instead of closing on the deal;

  • Wholesale flipping  – flipping to other investors after taking title without rehabbing;

  • Flipping and Selling on Paper – Purchasing a property and reselling it on land contract, contract-for-deed, or other carry-back arrangement;

  • Retail Flipping – purchasing properties, rehabbing them and selling them at retail prices for cash;

  • Sandwich Lease Option – Leasing a property with an option to buy from one person and subleasing it to another with an for them to buy;

  • Plain Vanilla Rentals – Classic buy and hold;

  • Lease-Option Rentals -Leasing to tenants with an option to buy;

  • Subject-To/Lease Option – Purchasing subject to the existing mortgage and selling on lease option.

  • Subject-To/Sell on Paper – Purchasing subject to the existing mortgage and selling on land contract, contract for deed or other carry-back financing.

• “Typical Returns”:  I am often asked what a typical return costs.  Hard to gauge, insofar as “typical” is an elusive concept.  I’ll take my best shot.  All of the following assume excellent records from the client.  Inferior books will cost you more!

  • Basic Form 1040 married, filing jointly, with 2 W-2s, 2 children, itemized deductions (e.g., mortgage interest deductions):  $200 to $300  

  • Schedule C for Wholesale Flips/Bird-Dogging, 12 deals or fewer:  $100 to $150

  • C-Corporation for Wholesale Flips/Bird-Dogging, 12 deals or fewer:  $250 to $300

  • S-Corporation for Wholesale Flips/Bird-Dogging, 12 deals or fewer:  $300 to $350.

  • Schedule E Rentals, 10 rentals, we calculate depreciation:  $250 to $300

  • Partnership Tax Return, 10 rentals, we calculate depreciation:  $350 to $450

  • Schedule E Subject To Purchases, Lease Optioned, 10 rentals, we calculate depreciation:  $375 to $425

  • Partnership Tax Return, Subject To Purchases, Lease Optioned, 10 rentals, we calculate depreciation:  $500 to $600

• Entity Returns:  Entity returns of a certain size require submission of a balance sheet to the IRS.  Preparing a tax balance sheet and associated items will easily add $100 - $150 to the cost of a return if proper QuickBooks balance sheets exist.  If we have calculate a balance sheet from scratch, the cost can easily hit $200 to $300 for that item alone.  The following returns require balance sheets:

  • Partnership, Limited Partnership, LLC Treated as a Partnership:  Gross receipts (total sales & income before any deductions) > $250,000 and > $650,000 in assets at year-end.

  • Corporations:  Total receipts + total assets at year end > $250,000.

• Number of Business Activities:  If the return being prepared involves one business type (e.g., rentals) as opposed to multiple business types (e.g. – rentals and wholesale flips), it will obviously require a simpler return and less time.

Audit Representation:  Billed by the hour at $225/hour.  It is often cheaper to settle than it is to fight and win!

Entity Selection & Set-Up:  We normally charge $500 to set up an entity, plus any fees charged by the state.  That fee includes 40 minutes of my time, which is often used to determine which entity would be appropriate for a particular business.

How Do We Get Started?

The first step is to get us familiar with your business in as economical a manner as possible.  We request several items to that end:

• Books & Records:  If in QuickBooks or Quicken format. (preferred)

• Tax Returns:  For the last 2 years. (SEND COPIES ONLY)

• Narrative:  In your own words briefly, describe yourself and your family and describe your business , both as it stands and where you want it be in 5 years.

• Client Update: VERY Important - Please fill this out completely before sending back.  If you have not received a copy  and need to request a copy, email my assistant Gesika at Gesika@ameritech.net

We will let you how much time we will spend reviewing your documents before incurring billable time.  Once we’ve had a chance to review your situation, please contact my assistant, Gesika (pronounced “Jessica”) at Gesika@ameritech.net or (614) 207-2441.  Material can be emailed to her email or sent via snail-mail to 870 High Street, Suite 104, Worthington, Ohio 43085, or faxed after business hours (for large amounts) to (614) 880-9346 Gesika can also help answer any questions not covered here!