Providing Client Accounting Services for Real Estate Investor Clients

Practice Management

Tax planning, advisory workflow, bundled services

Real estate investors and property management companies are among the most common clients in every tax firm. However, they are often overlooked as an opportunity to proactively deliver client accounting services, as well as proactive tax planning services that flow from access to financials.

If your clients are taking advantage of the safe harbor rule to claim the Sec. 199A qualified business income (QBI) deduction for rental real estate, one of the requirements is to maintain books and records for the real estate activity. For investors who were not previously keeping books, the Tax Cuts and Jobs Act provides an opportunity for tax professionals to educate clients about the requirement to keep books if they are using the safe harbor rule. This is also an opportunity for you to proactively set up the books and automate the accounting activity. With very little effort, you can help your clients have a deeper understanding of their rental real estate activities, qualify for the QBI deduction and proactively deliver tax planning services.

This video demonstrates how QuickBooks® Online tracks real estate accounting by location to create a balance sheet and income statement for each rental activity. By tracking properties by location, you can create a standardized set of management reports to help clients better understand their business, cash flow and tax implications.

Leading firms leverage QuickBooks Online to automate data entry and categorization, and create an advisory workflow where they can proactively provide insights and tax planning services without nagging clients for information or swapping data files. Here is a sample of reports to consider standardizing for real estate clients. Location tracking is highly customizable, and reporting can be filtered to provide any combination of property grouping, which allows for specialized grouping by investor for property managers.

You can also educate clients about how cash flow statements and other property reports can provide better insights to manage the business. At tax time, firms with an advisory workflow are no longer dependent on their clients to complete organizers or deliver rental activity summaries to begin working on tax returns. This can dramatically reduce the need for extensions, which creates new capacity in the firm.

Traditionally, some users tracked property activity by class, but class tracking only provides separate reporting for income and expenses and will not create balance sheets by class. Location tracking generates balance sheets and profit and loss statements by property. The video includes more key differences between location and class tracking, as well as tips to set up books and automate reporting for real estate investors. For example, one hack is that if a taxpayer separate LLCs for each rental property, which are all reported on the same taxpayer return, consider tracking them in the same QuickBooks Online file for simplicity and reporting consolidation. At tax time, you can easily print the reports by property to complete Schedule E rental activities.

A common complaint we hear from traditional firms that are not proactively providing advisory services is that clients won’t pay for additional services. To learn how leading firms are updating their service offerings and business models, check out “Introducing Your Bundled Service Packages.” By leveraging bundled services, leading firms are providing proactive planning services to save taxes, better communicating their expertise and improving their workflow to reduce non-value steps like nagging clients for information.

Providing real estate safe harbor books is an example of how tax reform can be a catalyst to update your practice from leading with tax preparation, to leading with tax planning and advisory services.

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