It is common for real estate agents to commingle personal and business finances. However, maintaining a proper accounting methodology by keeping your accounts separate allows you to stay organized, grow your business, and maximize your deductions during tax season:
· Maintain Separate Bank Accounts
o Set up a separate business account in addition to your personal bank account. Best practice is to maintain a separate account to track all your business transactions in one dedicated account which is categorized and date stamped.
· Maintain a Separate Business Credit Card
o Maintaining a separate business credit card allows you to build up a line of credit for your real estate agent business. Any interest rate incurred on your card is deductible as a business expense. Maintaining a separate credit card serves the same purpose and functions as maintaining a separate bank account to properly tack expenses.
· Track Expenses Properly
o Systems designed per best industry practices should be in place for tracking expenses that overlap such as expenses related to a home office or personal car usage which be documented, categorized, and expensed properly.
· Categorize Expenses Properly
o Consult your CPA to properly categorize and document business and personal expenses. Scrutiny is high around business expenses such as lunches, entertainment, and travel.
· Set a reasonable personal salary
o Tax planning and industry financial expertise is critical in this area. Setting your salary too low exposes you to risk of IRS examination which can result can be payment of unpaid employment taxes and hefty penalties and interest. Setting your salary too high leads overpaying taxes. Over the course of your business’ life the overpayments of tax and lost investment opportunities can cost you hundreds of thousands of dollars. Scrutiny is high around personal salaries, be sure to consult a CPA with real estate industry knowledge.
Real estate agents and business owners face unique financial challenges and opportunities. Since a large portions of business is conducted outside of the office, expense management is a top priority. You have the burden of saving your receipts and recording and categorizing your expenses when you are in your office.
Expense management allows businesses and agents to maintain strong cash flow while also maximizing tax deductions by properly tracking your expenses Maintaining a streamlined bookkeeping system as a real estate agent leads to significant tax savings. Hiring a CPA with experience working with real estate agents ensures that your business is organized and you are receiving first-class business advisement.
By consulting your business adviser now and considering the points above, you’ll be able to lower your taxes, reduce potential payroll-related penalties, and develop a strategic business plan to optimize your success in the upcoming year. If you need help with expense management for real estate agents and investors in Charlotte, we can help. If you need more information about the process, please contact Camuso CPA.