As real estate agents, there are two essential things you need to remember to stay in business. First, ensure that your existing clients are happy and refer new clients to grow your business. Second, maintain your books of accounts as per the requirements of the IRS and generate the required reports.
Not following IRS regulations in the real estate business when maintaining your financial records can cost you dearly in terms of penalties. In extreme cases, you could be forced to wind up your business.
While accounting does not help you in servicing clients or getting new clients, ignoring this aspect means paying higher taxes or being investigated by the tax authorities. If you don’t want to increase your overheads, outsourcing your accounting requirements to a CPA specializing in real estate.
Common Mistakes That Real Estate Agents Tend to Make with Their Taxes
Wrong Tax Structure
Your business and personal identity should never be combined together. Your business should have a separate entity like a limited liability corporation. This helps you avoid taxes since LLCs do not pay taxes.
However, you need to pay taxes through your personal tax account for the profits you make. An LLC can be set up as a partnership, sole proprietorship, or corporation.
Incorrect Classification of Expenses
Expenses need to be recorded under the proper heads in the books of accounts when filing your returns. It helps in higher profit margins since each expense is taxed differently. Entering the expenses under the wrong heads denies you the legal deductions.
Client servicing expenses like transport, phone bills, advertising expenses, and professional fees paid to accountants by real estate investors are tax-deductible.
Common Bank Accounts
Often, you might use the same bank account for your personal and business financial transactions. Keeping separate accounts for both helps you when filing returns for yourself and the business.
How Can a CPA Specializing in Real Estate Help You in Your Real Estate Business?
To maximize profits in business, you need to focus on your core area, real estate. Here are some ways in which a CPA can help you:
Generate Higher Profits
A real estate accountant or a CPA specializing in real estate lets you focus on your business so that you spend time servicing your existing clients and acquiring new clients.
You can devise marketing strategies and decide the best platform to host your products/services. The time you save by not handling bookkeeping is spent more productively on income-generating activities.
Minimize or Eliminate Accounting Errors
You might have the time to manage accounting issues, but a CPA specializing in real estate would handle everything more professionally since they are aware of the latest regulations and would be accountable for any errors they make.
Furthermore, you don’t need to face the IRS in case of any investigations.
Worth the Cost
It might seem that the upfront costs of hiring property accountants, or a CPA are high, but if you consider the long-term benefits in terms of avoiding penalties and availing tax deductions, then the investment is worth it.
How Can a CPA Help You Cut Costs?
A CPA can help you cut costs in the following ways:
Organizing Financial Documents
A CPA helps organise your financial documents as per the requirements of the IRS. They are maintained through software and appropriate files so that you can assess your cash flows and applicable taxes at any point in time.
Legal Protection
With knowledge of the latest regulations, a CPA can protect you from any queries regarding your expenses or profitability.
Cost Allocation
Allocating expenses to the right heads ensures tax benefits and improves your net profits.
Having a separate accounting department means higher overheads. Whether you make profits or not, you have to pay staff salaries. The firm will work greater hours at the decided fee and no overtime will be due.
Greater Accountability
Since this is a performance-based contract, any deficiency of service means termination of the contract. The outsourced CPA is more accountable since they want to retain their contract.
Business Strategies
A CPA can help you achieve your long-term strategic targets through budgeting, payroll processing, reconciliation, and debt management.
Conclusion
Accounting and business profitability go hand in hand. When you outsource our accounting, you can focus more on taking your business to the next level. Check the credentials of the CPA before you make the decision and get ready for higher profits.
