Keeping good records, be in the know
Keep it separated
Some of the real estate agents we have worked with were shocked when they got their tax bill. They owed more to the IRS due to not capturing all of their expenses. They had been missing out on thousands of dollars of deductions because they are not keeping good records. The primary mistake we see is a simple one, co-mingling of personal and business bank accounts. The first thing you should do when opening any business is to set up separate business and personal bank accounts. Keeping separate business and personal credit card accounts is also a best practice.
Many times I have to explain to a business owner that the time it takes to properly identify and separate these expenses at tax times will result and a higher fee for their tax return. Additionally, co-mingling of business and personal accounts puts you at risk for missing out on valuable deductions due to miscoded expenses. The purity of a business credit and bank account is the primary way to take advantage of every allowable expense and streamline the process of completing and filing tax documentation.
Keep your records tight with Xero
Good records are supported by using a recordkeeping system that is simple, accurate, and eliminates the need for manual coding. I have seen excellent recordkeeping by highly organized real estate agents using only an excel spreadsheet, but those agents are few and far between. When a busy agent is faced with keeping better accounting records and networking with more clients, buyers, and sellers, networking always wins. An agent that starts out organized can let bookkeeping and documentation fall by the wayside quickly and when tax time rolls around, they do not know which expenses are for what.
We are a Xero only accounting firm because it allows us and our clients to easily establish a system of codes for each type of expense. Each expense may be recorded automatically as it comes down through a secure bank feed. This simple yet comprehensive process makes order out of chaos, codes all your expenses properly, and allows you to take every deduction that you deserve come tax time.
