Why Real Estate Investors Should Not Do Their Own Bookkeeping and Tax Planning

Angie Toney, CPA/PFS (00:00)
Woo, so the biggest mistake is probably doing their own books. That’s the biggest mistake. Not recognizing when it’s time to get a professional. then because you don’t have a, remember, we want to be real estate professionals because that’s going to get the biggest deduction. But so that means you’re running a business. When you’re running a business, it has to be documented properly. You understand? So the habits are different. So, okay, it’s not so busy in the beginning. Excel is

Dylan Silver (00:04)
Yeah.

Angie Toney, CPA/PFS (00:28)
pretty good.

Dylan Silver (02:01)
Hey folks, welcome back to the show. Today’s guest, Angie Toney is a tax professional with 30 years of experience. She has a background in corporate internal auditing. She’s a CPA, certified tax strategist, certified fraud examiner. She holds a master’s degree in global management. Welcome to the show, Angie.

Angie Toney, CPA/PFS (02:17)
I so appreciate having you. I’m glad I stumbled across you.

Dylan Silver (02:20)
It’s great to meet you. And when we talk about tax strategy, when we talk about anything related to accounting and real estate, I was mentioning to you in the green room, know, people really should get started with this as soon as they get their business up and running, especially in real estate.

Angie Toney, CPA/PFS (02:38)
Yes, they absolutely certainly. I have real estate professional investors and people who just, you know, short term rentals, all kinds of things. And as soon as they see the IRS logo shut down ⁓ and they don’t really do what they’re supposed to do. Yes.

Dylan Silver (02:56)
You know, it’s one of these things where I can speak from personal experience, and I think a lot of people will relate to this. You don’t tend to think about this until you got a big tax bill to pay, and then you’re like, okay, now I gotta get into the weeds here and understand how this whole thing works. How do most people, in your perspective, get started with bookkeeping and with tax strategy?

Angie Toney, CPA/PFS (03:18)
I think the problem is, first of all, we’re brainwashed with corporate mentality. We’ve worked for someone else usually. People don’t just jump in, even though I’ve met a few who from their young days, like 18, 20, 21, already owning property. And so they kind of just whirlwind themselves into it. But most people have a brainwash of a corporate mentality. someone’s doing it for me. You get a paycheck, they withhold, all good. What’s this estimated tax thing?

And then as you know, too, at real estate agents, the income is cyclical. So sometimes it’s know, feast or famine. And then you’re like, well, I don’t have it. And then when they do have it, it’s spend, spend, spend, and not considering the tax. And then they…

Dylan Silver (04:00)
Yeah, I mean,

you mentioned this feast or famine, you know, market cycles and it being cyclical. That’s very true. And it’s real estate agents, it’s real estate investors, you know, it’s lenders as well and people in the mortgage space. And one of the things that I think gets tricky then is you think, okay, well, I’m not making money right now. Therefore, I don’t need to have, you know, great books and I don’t need to, you know, think about tax strategy. Well, one of the things is, is

You might not be making money in January, February, or March, but come November or December, you might have a windfall, you know, a flip that goes well or sell a property. And now you’re kind of having to play catch up.

Angie Toney, CPA/PFS (04:41)
you know what, it’s a discipline too, because people are just not used to that type of a situation. And so from January, even if it’s a little trickling in, start putting away. Sort of like they have this profit first methodology where it’s like the envelope method on steroids. You put a little side, you come in, put some towards your compensation personally, and then put some towards the tax.

And also you have to understand the rules before you get the big bucks. then because what you’re doing, you’re trading your time for money. And that’s what people ended up doing. And then they don’t want to pay the professional to do the books when the money starts getting there. I’ll do it myself. And then that’s where they start getting into trouble.

Dylan Silver (05:28)
into these issues. know, when people are on W-2, I think I was shocked to learn this. And now, of course, you know, my eyes are wide open to it is you can start getting involved in real estate and then you can offset your W-2 tax burden in many cases. And there’s a number of different ways to do that from what I understand. But, you know, people sometimes aren’t thinking like that. And so they’re thinking, well, you know,

I’m trying to get into real estate. Well, the miles that they’re driving looking at properties could potentially be a deduction. If they’re doing any type of marketing or self-promotion, that could potentially be a deduction. And so I think even folks who are kind of part-time, whether it’s an agent or an investor or just getting started, these are ways that they could potentially offset their W-2 tax burden.

Angie Toney, CPA/PFS (06:18)
Yes, another part that confuses people when they get into real estate, they shouldn’t be focused on, let me get into real estate to save taxes. Real estate is more about wealth building. And then you build the strategies around the real estate because here’s the shocker, thresholds when you make a certain amount, your…

Because we love the depreciation. That’s what’s keeping the losses on the property. And you’re going to be shocked to find you can’t offset it if you make too much and not a real estate professional. This is for my W-2 people. And they get upset that, wait, I got into real estate to save taxes, and that’s not the case.

Dylan Silver (06:52)
Thank

You’ve currently got to have that full-time real estate ⁓ operator designation. Walk us through that.

Angie Toney, CPA/PFS (07:50)
Let’s.

Yeah, it’s a real estate professional definition that the IRS has. And the states, by the way, if you’re in an income tax state, it’s a thing. I actually have a client where the IRS hasn’t bothered the person as a real estate professional, but New York state is not having it. They’re a strict state when it comes to the hours that you spend. So a lot of your personal services time, other than outside of your W-2, more than half of it has to be materially participating in the

property and then the 750 hour thing that you’re actually doing the real estate so it’s a it’s kind of a complex definition and when you’re not having a contemporaneous log because the IRS is like well I think I did about you know 750 or 800 and no it has to be exactly how many hours you spent and it better be 750 or more

Dylan Silver (08:45)
So if folks are getting started, I’d like to get into the weeds a little bit here, if we can, maybe give away some of the gold, but not the whole bar here is, let’s say I’m a teacher or I may be working for the city, right? But I’m also looking at getting into real estate wholesale, or I may be looking at getting into Airbnb arbitrage, or I may be looking at acquiring my first rental property, I may be going to foreclosure auctions, et cetera. And I’m logging all this time,

Angie Toney, CPA/PFS (08:51)
Yes!

Dylan Silver (09:14)
actively looking for deals, actively driving around, talking to sellers, knocking doors, calling foreclosure leads. Are these things that would count as like real estate hours?

Angie Toney, CPA/PFS (09:26)
Yes. So it can’t be like research that’s different. Like, let me go research an area. No, you’re actively looking for the property meeting and, visiting the property. Yes. Keep that log. Those hours do count. And I always ⁓ suggest to entity structure is a big thing because if you own a business, say a real estate business, ⁓ it could be a C corporation and you’re at least 5 % or greater shareholder.

It’s easier to qualify for the real estate professional, but as a teaser, because that’s, you know, don’t want to go, you know, how crazy into the rules and what does that look like, but I just want to put that out there.

Dylan Silver (10:07)
Well, you you mentioned the rules and how complex this gets. It’s complex for tax professionals. It changes every year, right? And so people, know, this was one thing that surprised me and still does is, you you could be thinking like, hey, this is the tax strategy that worked, you know, two, three years ago. It could literally be totally different, irrelevant now, potentially.

Angie Toney, CPA/PFS (11:02)
We had a reform in 2017. Now we have this one big, beautiful bill act last year. They all come with something and you need, that’s why when you vet your professional, hey, what training have you taken? I heard there’s this OB3 bill. What happened since reform? Did the tax ⁓ returns change? Like the schedules are changing and so on. So yes, make sure you vet your professional and know these things.

Dylan Silver (11:27)
Now, when we talk specifically about real estate agents, investors, really folks that are involved in any segment of the real estate space, lenders, et cetera, finding a tax professional, I have this experience, it can feel like a little bit frustrating, because I’m like, I don’t really know how to vet these people. This is my first time doing this. What questions should I be asking? Where do I find them? Do I go with the same person that my buddy is using who’s not at all involved in real estate? It almost feels like I’m doing

job interviews in a way. How would you recommend folks who again, maybe that first time, you know, with keeping their books or with hiring a tax strategist, tax professional, how would you recommend they go about their search?

Angie Toney, CPA/PFS (12:09)
Yeah, and I would definitely recommend seeing a few, getting on calendar. If the professional doesn’t want to meet you ahead of time and is a lot on charge just to have a 15 minute conversation, to me, that’s not a relationship. Because also, not only are you looking at the technical skills, you’re also looking for a relationship, someone you can, because real estate is all year. You know, after the tax is filed, You may, August, you see a commercial property that, I’ve never done this before, I should talk to a professional.

Dylan Silver (12:30)
all you.

Angie Toney, CPA/PFS (12:38)
And if your professional won’t see you and charges you, you know, nickel and dime, I’m not saying the time isn’t important. It is, depending on the amount of information you need. But you should look to see if they’re credentialed. Find out how they train. What is their philosophy on risk? Are they gonna push the envelope? Are they conservative? What do you like? You you gotta make sure you fit with that kind. The IRS does have a directory. You can look up.

tax professionals on their directory as well. But make sure you meet a few.

Dylan Silver (13:11)
Now, one of the things that I think people often overlook is this idea of tax strategy, you know, when it comes in conjunction with everything else that they’re doing, especially again, if they are kind of, you know, getting started or on that on ramp to going full time. And there’s a lot of people again, who won’t even think about this until they get to the point of, I’ve got a big tax bill to pay.

And that’s kind of when people sometimes get into trouble with, I’ll just kick this can down the curb, I’ll figure it out later, right? When folks are on that on-ramp, maybe it’s their first year going full-time, maybe it’s, you they just brought someone on and now they have a little bit more complicated books, what are some of the first steps that they should take in order to have a solid foundation?

Angie Toney, CPA/PFS (14:00)
The first thing is you recognize that you need it. Your time is too valuable. You’ll make more money looking at these properties and securing these properties than doing your own books that you’re to make a mess of anyway, right? And especially if you have a different structure, you’ve elected S-Corp or you’re a C-Corp, the balance sheet is different. The tax returns are different. I do want to stress that a tax return is a historical document. It already happened. Year ended, you filed, and that’s it.

A lot of professionals are going to ask for receipts and this and that and put it together and file it and that’s it. No strategy. But the real strategist will talk you through why something is the way I go line by line with my clients. A lot of people, you’ll be surprised how old they are and don’t understand how to read a tax return. A something, a contract, you’re signing with the government on the penalties of perjury. So you got to make sure you’re getting some advising along with the volume.

Dylan Silver (14:48)
Yeah.

Angie Toney, CPA/PFS (14:58)
Some preparers just do returns. That’s it, no advising. And in all fairness, that is a service. And if you’re not paying for the advising, you may not get it.

Dylan Silver (15:50)
It’s interesting because we’re talking about, you know, advising on your tax return. I think most people, 90 % of people who are going about filing their taxes are going through this, you know, with some level of confusion or not understanding and they’re kind of just trusting carte blanche, the service that, ⁓ you know, is filing their taxes for them. And that then has this kind of snowball effect into everything else related, right? So you’re thinking, okay, well, I was able to do that and I kind of

you know, did that at the last minute. I can kind of approach books the same way, you know, I can kind of approach the way that I’m hiring people and the structure of the business, you know, and so this does tend to blend together, maybe create some bad habits. You mentioned earlier, Angie, you know, people making a mess of their books. I’ve spoken to a lot of people who keep their own books or have some type of like VA who keeps the books for them. When people are keeping their books, what’s the biggest mistake that you see?

Angie Toney, CPA/PFS (16:46)
Woo, so the biggest mistake is probably doing their own books. That’s the biggest mistake. Not recognizing when it’s time to get a professional. then because you don’t have a, remember, we want to be real estate professionals because that’s going to get the biggest deduction. But so that means you’re running a business. When you’re running a business, it has to be documented properly. You understand? So the habits are different. So, okay, it’s not so busy in the beginning. Excel is

Dylan Silver (16:50)
Yeah.

Angie Toney, CPA/PFS (17:14)
pretty good.

It’s way of keeping track of all your receipts and so on. We don’t want to see Ziploc bags and we don’t want to see shoe boxes of receipts because that means your bookkeeping wasn’t done and that’s more work for the professional. That’s not the same thing as doing taxes. Taxes are coming from financial statements which are gathered or accumulated from all those receipts, right? Gross revenue. Most people, some people get 1099s like if you have a property manager and they’ll give you a 1099 showing you the rent.

Or, you know, if you’re a real estate agent, you get it from like a Keller Williams or something like that. Then you have to know what you’re deducting. The mileage, as I said, contemporaneous log. Some deductions are considered strict substantiation by the IRS. That means down to the penny, down to the mile, and mileage happens to be one of them. Cell phone is something that’s like,

You know, we make some personal calls, you can do 90, 10, 80, 20. You know, some of it is deductible and some of it may not be. But you know, if you’re running a true business, generally speaking, they won’t mind if you take a hundred percent because once in a while your grandmother calls you, once in a while you call the doctor, you’re not going to nitpick on that. Again, that’s not a strict substantiation. So part of it is right. If you’re not doing the books correctly, you’re going to overpay taxes, which I feel is worse than underpaying tax.

Dylan Silver (18:26)
person to mileage.

Yeah, I mean, I think a lot of people echo that sentiment, especially, you know, going back to an earlier point, you know, if you’re coming from corporate W2, and this is, you know, a new venture for you, it’s a mindset shift. And it can be, I can speak from personal experience, it can take some time for some people, some people hop right in, but others, you know, it can be a mindset shift, and it can be a hurdle to overcome.

and you kind of have to say, okay, I’ve really got to do this because I don’t know what I’m doing or this is just something that I don’t want to have to learn every nook and cranny of when there’s already people out there who are great at this. We are coming up on time here though, Angie, any new projects that you’re working on and then as well, what’s the best way for folks to get in contact with your team?

Angie Toney, CPA/PFS (19:20)
Yeah, so I have, we have rental property in New York, Florida, my husband and I, and we would like to get more into flipping. We’ve put that on pause. We both have parents. We’re older now. Our parents passed away. And so some hiccups along the way. In my way, that’s life. That’s business. And so we have to fit different things in. So we’re doing things like that. We have college students too. So that’s a thing. But I want to put out to my ⁓ audience that you have to think about.

You’re full time now. We have to think about retirement. We have to think about healthcare because there are ways to do this and get it out of your business and don’t have to worry about, let me go back to a W2 to get that. So I want people to think about their business that way, their real estate business that way. For me, I am the CEO of Oasis Tax Advisory Services, Inc. So it’s myoasistax.com

You can visit the website and fill out a contact form. There’s also a place where you can schedule on my calendar. have a half an hour complimentary strategy session just to talk, see if I’m a good fit.

Dylan Silver (20:32)
Angie, thank you so much for your time today. Thanks for joining us.

Angie Toney, CPA/PFS (20:35)
Dylan, thank you for having me. appreciate it. Education should be free.