RISMedia's recent webinar—AGENTS: It's Not Too Late to Save on Your Taxes, sponsored by Intuit—laid out the actionable finance strategies and planning insights that today's real estate professionals should heed if they're looking to save on taxes.
"Real estate accounting is a whole 'nother animal," underlined speaker Mariette Martinez, a financial accountant, IRS Enrolled Agent and Intuit trainer/writer who has worked in the accounting, tax and technology fields for two-plus decades.
The takeaway? No business should be left behind because of a lack of financial literacy. By being more proactive in tax planning and preparation, real estate professionals can make stronger business decisions, which translates into tax savings.
"Learn the bookkeeping basics," said Martinez, who shared the three major types of real estate accounting profiles: Real Estate Agent, Real Estate Investor and Real Estate Flipper/Dealers.
"You really need to document your intent," she emphasized.
Real estate investors, for example, have the intent to hold property long term, and therefore the profits of their sales are taxed at the capital gains rate. For real estate flippers and dealers, however, the intent is short term and so sales profits are taxed as ordinary income.
Even more fundamental, real estate pros should be familiar with the "Books to Tax Lifecycle":
- Manage the books
- Balance the books
- Close the books to file taxes
- Maintain the books
"You need to audit your information," Martinez said, reminding real estate professionals that seeking out guidance can also help if they're new to the process. "Hire an accountant who can teach you financial literacy slowly and at your own pace."
To properly track their financials and claim the necessary deductions, agents need to capture the full scope of the year's expenses and profits. Therefore, they should collect the below and more:
- Bank and credit card activity, petty cash and liability accounts
- Business expenses separate from personal funds
- Balance sheets with reconciled expenses
- Profit & Loss information
- Mileage and auto expenses
- Asset list for depreciation calculation
"There are three simple ways to track accounting data," Martinez shared. "You can use a manual ledger, a good 'ole spreadsheet like Google Sheets or an automatic database like QuickBooks. To determine which one will grow with you and serve your needs, start by asking yourself, 'Do I need a cash basis accountability tool or a full ledger accrual accounting system?'"
With QuickBooks, there are varying levels:
- Self-Employed – For independent contractors who file Schedule C (best for service providers with no payroll)
- Simple Start – For new businesses just starting out
- Essentials – For service-based businesses who invoice their time
- Plus – For product-based businesses who track their inventory
- Advanced – For growing businesses who need more productivity and insights
How can an automatic database simplify accounting for agents? For those who prefer to focus on the buying and selling aspects of their careers, programs such as QuickBooks can help with financial accountability by automatically tracking and organizing expenses and receipts, collecting bank and credit card information, and categorizing transactions so personal and business expenses remain separate.
"Empower and enrich your life with the tools and people that will allow you to be more organized and have more financial visibility in your business," said Martinez.
A full recording of the webinar is available below:
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