As a CPA who works with real estate professionals, Janet Berry-Johnson noticed that some clients “think they’re doing a good job keeping their books, but tax time tells another story.” If you’re wondering how you’re doing, Berry-Johnson says to ask yourself these questions:
Am I capturing all of my expenses?
At tax time, real estate professionals I work with spend hours trying to remember what they spent and track down receipts. We can’t file a tax return based on estimates, so they end up losing out.
I recommend setting up separate business checking and credit card accounts and using them for all business-related transactions, to make tracking easier. If they don’t want to do that, I recommend they use some sort of expense tracking software.
Some of my clients try to recreate their expenses using bank statements when they’re missing receipts. While this works in some circumstances, I always recommend keeping receipts to avoid raising IRS suspicions. This is especially important for meals and entertainment expenses.
If you don’t want to deal with a mountain of receipts, use an IRS-approved app that can easily capture receipts. Snap a picture of the receipt from your phone and link it to your expenses right away. That way, every transaction is recorded, so you’re ready to go at tax time—no shoebox or bank statement search needed.
How profitable were my transactions?
Now this question is more for you than it is for me, but since we’re talking about keeping better track of expenses, a good organizational structure can make a difference in budgeting and cost-benefit analysis. You’ve got to spend money to make money, but some take it too far, spending thousands of dollars on Facebook ads, mailings, open houses, photography, and 3-D virtual tours. Sometimes it makes sense, but if you don’t track both your income and expenses by listing, you may be losing money without knowing it.
Are my mileage records accurate?
Every year, I ask my clients in the real estate industry how much they drove for business. I cringe when they tell me “just use whatever number we used last year.” That’s when we have a conversation about the IRS’s strict rules for documentation of business mileage. I used to recommend that my clients keep a paper log in the glove compartment, but now it’s much simpler.
Apps like QuickBooks Self-Employed automatically track your mileage on the go. This eliminates the need to manually record every mile driven. Instead, every trip is automatically tracked as long as you have your phone in the car with you. You just need to swipe to classify the trip as business or personal once it’s complete.
How can I make tax season less stressful?
All of my clients are important to me, but I have to admit the ones who send me complete, organized records at tax time hold a special place in my heart. But if you prefer the DIY route, QuickBooks can make tax season less painful for you too. You can upgrade to connect with TurboTax and eliminate manual data entry, or use your reports to prepare a return using any tax preparation software.
Little expenses add up to big bucks over the course of the year. The key to taking advantage of those deductions is documenting everything so you’re prepared if the IRS comes knocking. Keep track of every expense and every mile. You’ll sleep easy knowing you’ll received all of the write-offs you deserve and have the evidence to back it up.
Source: Janet Berry-Johnson, CPA (realtormag.realtor.org)