1:42 Minute Read
Ever notice accountants seldom make great salespeople? Likewise, real estate agents tend to struggle at good bookkeeping. I suspect the IRS knows that about us and banks on our weaknesses to improve their bottom line. I don’t mind paying my fair share of taxes, however, paying extra in taxes because of poor record keeping is really silly.
“Real estate agents do everything:
We’re salespeople, business managers, style consultants, project managers
And on some days, we’re accountants.”
Newer agents get freaked out this time of year when they realize their lack of preparedness and recordkeeping will become obvious in a few weeks as they prepare their taxes. With the New Year just behind us and Tax Day on the horizon, here’s a few things to remember about good recordkeeping.
Rule #1 – Keep it simple. Always remember the KISS rule: Keep It Simple Silly! Good recordkeeping doesn’t have to be difficult. Any system you adopt needs to be easy to use. If it’s simple, you’ll actually use it rather than avoid it. With that in mind, I don’t recommend buying bookkeeping apps or software programs - they can be more work than benefit.
Rule #2 – Separate business and personal. Keep a separate checkbook and debit card for your real estate business. Run all your business related expenses through it.
Rule #3 – Collect every business related receipt. Everyone jokes about having a shoebox full or receipts. But can you think of an easier way to keep all those tiny pieces of paper? Keep a box handy near your desk so you can drop in receipts used for business. Between having a bank statement and a collection of receipts to prove your expenses, reviewing your business at the end of the year will be a breeze.
Rule #4 – Track your miles. Write down EVERY MILE driven for business. Keeping a written record of miles driven isn’t easy, but at 53.5 cents per mile, it may prove to be the most generous gift given to you at tax time. Many agents complain that’s its too difficult to write everything down. But think about this: Driving 15,000 miles for business each year – which is easy to do – translates into $8,000 reduction in tax liability. I use the Mileage Log app for my iPhone. There are better apps out there but this one’s easy for me to use. Whether you use an app or written notebook, make sure you record starting and ending miles, from and to what locations, date, and purpose of trip.
Rule #5 Keep another box for your home budget receipts. Specifically, keep copies of all of your home utility bills. If you use a dedicated space in your home for an office (and, yes you should), you can offset your home utilities by the percentage of space used.
Rule #6 Make regular estimated tax payments to the IRS and the State. Which is harder: Sending a portion of each commission to cover future tax liabilities or fret when your tax bill is due and there aren’t enough funds to cover it? It may be contrary to “sound business advice”, but I’ve always tried to overpay my tax estimates and used the annual tax return to pay off my house quickly. Worked like a charm.
And at the end of the year, spend an afternoon putting your receipts into these
simple categories: advertising, auto expense, auto mileage, license and association fees, office expense, postage, utilities and that easy catch all, MISC. Doing so will accomplish two things. First, you’ll be ready to complete your taxes when they’re due. And secondly, you’ll have a clearer understanding on your business’s profitability. Win-win.