How to Hire A Tax Strategist (Save Thousands Every Year)
In this article, I’m not going to give you a detailed list of every way you can save on taxes.
I am going to encourage you to find someone who has that list and can tell you precisely what you need to do to save on taxes.
This discussion could lead to your most strategic move to preserve and create wealth by saving on what is likely your largest annual expense: taxes.
Note that if you are a casual investor or if you don’t plan to build significant wealth at some point, this article may not interest you.
It will require effort, thought, and money to implement what I recommend here, and it will only be worth it with the appropriate economies of scale.
Unless you are a CPA (Certified Public Accountant) or tax strategist, there’s no way you can do this effectively yourself!
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Ed’s Story
In 2012, my business partner and I were developing a Hyatt House hotel. We wondered if there were ways to structure the ownership to maximize our legal protection and minimize our taxes.
I Google searched “how to find a tax strategist.” That’s how I found a guy named Ed.
Ed had blogged about his sad tax story. Ed is a successful multifamily real estate operator and real estate broker who made a lot of money for a lot of years.
Sadly, he lost a large percentage of it along the way.
How?
By overpaying the IRS.
Based on Ed’s income, his annual federal income tax bill of about $120,000 seemed reasonable to him. But one day, Ed read an article about tax-saving tactics for real estate investors. He met with his CPA for lunch to share them.
The CPA agreed they were great ideas that Ed should implement right away. He suggested Ed may want to go back and amend his returns for a few years to capture some of these benefits.
A bit irritated, Ed pressed his accountant further: “Why didn’t you tell me about this before?”
His CPA answered (to this effect): “You pay me to do your taxes and oversee your bookkeeping. You don’t pay me to be a tax consultant. I just take what you give me and file your returns.”
That was Ed’s last lunch with his now ex-CPA. He ditched him. But before he did, Ed interviewed several highly recommended tax-preparers. But Ed didn’t just hire a better CPA.
Ed hired a tax strategist.
In the decade since he hired a tax strategist, he has paid exactly zero dollars in federal income taxes.
“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.
Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands.”
This exact situation won’t apply to everyone, but even if you could save half that much, wouldn’t you want to know how?
To be clear, I believe Ed is a high-integrity guy. He is conservative by nature and believes in paying his fair share, as do I.
But to achieve these savings, you must understand the rules. Or know someone who does.
What to Look for in a Good Tax Strategist/CPA
Hopefully, your CPA is better than Ed’s. But I encourage you to be sure he or she is highly ethical and, simultaneously, eager to save you money on taxes.
You’ll want a reader/researcher. Not just a CPA who got their license and fulfills their annual continuing education requirements. This is someone who aggressively seeks out every possible tax advantage for you. Someone who knows the rules and applies them.
You’ll want someone who is not afraid to use every legal deduction and who’s ready and able to defend you if the IRS comes calling. I had a routine IRS audit in 2001 that turned into a long, drawn-out ordeal. I was glad to have a great CPA who represented me well. I never met with the IRS agent, and he only found one $180 item he disagreed with.
For most, this person will be an integral part of your team. Someone who sets up systems to stay current on your cash flows, expenses, and deductions. It’s frustrating to learn you should have been tracking something all year to save on taxes, but you didn’t know until filing time.
You’ll have to determine if you want someone available to consult year-round or someone who is mainly focused on your tax return. Either may be fine, but you don’t want surprises. Note that the best time to engage with most busy tax professionals initially is not in the thick of tax season.
Assuming you invest in real estate either actively or passively, you’ll want an individual who specializes in real estate. It may be someone who invests in real estate themselves, but it should certainly be someone who focuses on clients who do. You will want to ensure they have significant experience dealing with multi-state tax returns, self-directed IRAs, and self-directed 401(k)s.
You may want to hire someone with multiple certifications, such as an Accredited in Business Valuation (ABV) credential or membership in the National Association of Tax Professionals or the National Association of Enrolled Agents. But this is less important to me than their expertise and specific focus on real estate.
Potential Tax-Saving Strategies
I hired the same tax strategist/CPA that saved Ed about $120,000 annually. He has saved me a boatload of taxes as well. My tax strategist teaches his clients…
The importance of direct investment in real estate (as opposed to REITs, which don’t pass through losses from depreciation on a K-1).
About the power of cost segregation studies. Many commercial real estate operators accelerate their depreciation schedules on behalf of investors. Their investors can utilize these losses for years.
How to defer taxes through a 1031 exchange or a “lazy” 1031 exchange.
How to reset your asset basis to zero at the time of death, allowing heirs to potentially pay zero capital gains or depreciation recapture taxes at the time of inheritance.
How to “partner with the IRS” to use self-directed Roth and SEP IRAs, Qualified Retirement Plans, and other vehicles to pay as little tax as possible.
How to hire your kids in your business and effectively save a lot on taxes until they are 18.
How to set up a medical expense reimbursement plan to deduct your medical expenses.
How to correctly classify expenses versus capital improvements to maximize deductions.
How to avoid passive loss limitations by qualifying as a Real Estate Professional according to IRS guidelines.
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Frequently Asked Questions
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Hiring a tax strategist can optimize your financial situation by identifying tax-saving opportunities, ensuring compliance, and minimizing liabilities. They provide tailored advice based on your unique circumstances, helping you retain more of your income and build wealth efficiently.
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A tax strategist is a professional who specializes in developing personalized strategies to minimize tax liabilities and maximize savings. They analyze your financial situation, identify potential deductions, credits, and other tax-saving opportunities, and create a plan tailored to your needs. Unlike standard tax preparers, strategists focus on long-term planning and proactive measures to optimize your tax outcomes, helping you retain more of your wealth.
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Yes, going to a tax expert is worth it. They provide specialized knowledge and insights, helping you navigate complex tax laws, maximize deductions, and reduce liabilities. Their expertise can lead to significant savings and ensure compliance, ultimately saving you time and money. A tax expert can also offer strategic advice tailored to your unique financial situation, enhancing your overall financial well-being.
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Tax strategy is vital because it helps minimize liabilities and maximize savings, allowing you to retain more of your income. By proactively planning, you can identify deductions, credits, and opportunities for tax deferral, optimizing your financial situation. Effective tax strategy reduces stress, ensures compliance with tax laws, and aligns with your long-term financial goals. It not only helps in wealth accumulation but also enhances overall financial security, enabling you to invest in your future with confidence. A strategic approach to taxes can significantly impact your financial well-being.
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A tax strategist and a CPA (Certified Public Accountant) are not the same, though some CPAs are also tax strategists. A CPA is a licensed professional who handles accounting, auditing, and tax preparation. They ensure compliance with tax laws and regulations. A tax strategist, on the other hand, focuses specifically on creating personalized strategies to minimize tax liabilities and maximize savings. While a CPA may offer tax planning, a tax strategist takes a more proactive approach, concentrating on long-term financial goals. Working together, they provide comprehensive financial and tax solutions tailored to your needs.
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Tax strategy refers to a comprehensive plan designed to minimize tax liabilities and maximize savings through legal means. It involves analyzing your financial situation, identifying deductions, credits, and other tax benefits, and implementing tactics that align with your long-term financial goals. Effective tax strategy helps optimize your overall financial position, ensuring compliance with tax laws while enhancing wealth retention. By proactively managing your taxes, you can reduce your tax burden, increase your financial security, and invest more in your future. It’s a crucial component of sound financial planning.
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Filing taxes with a professional is often better, especially if your financial situation is complex. If you only have W-2 income, filing yourself may make more sense. Professionals have expertise in tax laws, ensuring accuracy and maximizing deductions. They help navigate complicated regulations, reducing the risk of errors and audits. While filing yourself may save money upfront, it can lead to missed opportunities for savings. A tax professional provides personalized advice, ensuring compliance and optimizing your financial outcomes, which can ultimately save you time, stress, and money in the long run.
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Yes, going to a tax preparer is worth it, especially if you have a complex financial situation. They bring expertise in tax laws, ensuring accurate filing and maximizing deductions. Tax preparers can identify opportunities for savings, reduce the risk of errors, and help avoid potential audits. While you may incur a cost, the benefits of professional guidance often outweigh it, saving you time, stress, and potentially more money in the long run. Their personalized advice helps optimize your tax outcomes and enhances your overall financial well-being.
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A CPA (Certified Public Accountant) is a licensed professional specializing in accounting, auditing, and tax preparation, ensuring compliance with tax laws. They handle a broad range of financial services, including bookkeeping and financial analysis.
A tax strategist, however, focuses specifically on creating and implementing personalized plans to minimize tax liabilities and maximize savings. While a CPA may offer tax planning and strategy, a tax strategist takes a more proactive, long-term approach, concentrating on optimizing your tax situation.
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Yes, you can hire a tax consultant. Tax consultants provide expert advice on tax planning, compliance, and strategies to minimize liabilities. They offer tailored solutions based on your financial circumstances, helping you optimize tax outcomes and maximize savings. Whether you're an individual or a business, a tax consultant can provide valuable insights and guidance to navigate complex tax laws and regulations. Their expertise can be particularly beneficial for addressing specific tax issues, planning for major financial decisions, or ensuring compliance with changing tax requirements.
Concluding Thoughts
I am aware that many of you know about all these strategies and more. And most good real estate-oriented CPAs are knowledgeable about them as well.
But I’m writing to stress the importance of implementing them consistently and correctly. And one way to do that is to partner with a strategic CPA who specializes in real estate and who hates to see you paying more taxes than you should.
DISCLAIMER:
This article is for educational purposes only and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision. All investing involves the risk of loss, including a loss of principal. We do not provide tax, accounting, or legal advice, and all investors are advised to consult with their tax, accounting, or legal advisers before investing. Information and any opinions contained in this article have been obtained from sources that we consider reliable, but we do not represent that such information and opinions are accurate or complete, and thus should not be relied upon as such.
