How to Organize Your Real Estate Business for Tax Time

How to Organize Your Real Estate Business for Tax Time

4 min read
Clay Huber Read More

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You’re probably thinking, “well this article title sure sounds like a real estate guru sales line” but I promise you, I have nothing to sell you. Hopefully you’ve heard the good ol’ saying of “a penny saved is a penny earned”. It’s one of my favorites, and one that pertains exactly to the habit you should consider implementing into your business.

It’s our favorite time of the year… TAX TIME! (*clicking sarcastic font ‘off’ *). I’ve been going through my spreadsheets and it dawned on me that this would be an appropriate topic to talk about given the time of year.

First, I’m a big believer in having a CPA do your real estate business taxes. I’ve seen both sides of the argument, but I try to walk right in the “middle” of the debate. To me, the debate comes down to how you define “do”.

If you define having a CPA “do” your real estate taxes as…

“Here you go Mr. CPA” as you hand him a box full of receipts, invoices, 1099’s, etc. and then walk away and say, “Have a nice day” then while I won’t contest whether or not they get done, what I will contest is the efficiency, knowledge and profitability of that decision.

If you define having a CPA “do” your real estate taxes as…

“Here you go Mr. CPA, I’ve emailed you over my “insert numbers tracking software here” information, please let me know if you have any questions.” then I will contest not only have you accomplished efficiency, but you’ll also be walking away with knowledge and profits.

Efficient Real Estate Organization

I hope as you read the headline you just didn’t stare down at a shoe box full of invoices and receipts. If you did, don’t get discouraged, but do go out and buy a scanner/or some folders. It’s time to start organizing…

Organization is Step 1 in how you can get paid to improve your business.

  • 1. I have shoe box in my office (I know what you’re thinking, let me explain myself!) where I will drop the hard copy paper invoices/receipts as I get them.
  • 2. At least once every two weeks I pick up the shoe box, and begin scanning everything into my computer. (I use this scanner. Bigger price tag, but check out the reviews on it, and I can attest the thing is awesome)
  • 3. After all paper is scanned in, I throw it away. No file cabinets in my office! I then move the scanned documents onto “the cloud”. In short, “the cloud” is storage on the internet, so that for example, if my computer ever goes dead, I can go to my “cloud” from another computer and still access all documents. (I use this cloud provider)
  • 4. I place the scanned documents where they should go in my “virtual” filing cabinet on the cloud, and I’m done.

Efficient Real Estate Book Keeping

Organization is Step 1 in getting paid to improve your business. Step 2 is all about the book keeping. I personally use Excel Spreadsheets, but there are a host of other choices. This isn’t about ‘whose’ product you should use, but that you SHOULD be using something. Even if its in a simple way of keeping track of monthly expenses.

The more in depth you can get with this stuff the better, but as long as you, at a minimum have “organized” chaos, that is exponentially better than “shoe-box chaos”.

Knowledge and Improvement

Sticking with this theme, a shoe-box full of chaos isn’t going to tell you much about your company. Where is the money going? How much is going where? Where is money coming from? How much is coming from these places?

Organization and book keeping will make the answer to all these questions a click away. And with the answer to these questions comes the all important numbers such as revenues, expenses and cash flow.

You can’t improve anything and make more money if you have no knowledge of your numbers. You can’t have knowledge of your numbers if you don’t have book keeping. You can’t have solid book keeping if you have no organization. See where I’m going with all this?

Getting Paid

This is the beautiful thing. While not always the case, the majority of the time “improvement” (in regards to business) is defined as bringing more money into the business. Whether that be through cost savings or additional revenue, “improvement” involves making the company more profitable. By doing all of the above mentioned, odds are, you will see at least one thing that can either be slashed from the  budget (cost saving – “a penny saved is a penny earned”) or something that can be done for cheaper (perhaps buying in bulk).

To bring this article full circle, I task my CPA with looking at my numbers and seeing what ways they can be improved upon from an accounting perspective. I do NOT task my CPA with organizing, and then putting them into a book keeping software. Do you know what the CPA has to use to accomplish those two steps? Time. Do you know what the cost of time is for a CPA? Not cheap.

In summary, be sure you define “do” as your CPA simply looking for ways to improve upon your numbers from an accounting angle. Everything else should be on your shoulders. Doing this saves the CPA time and headaches which in return saves you money. When you save money, you make more.

What about you? What tips and tricks do you use to make your organizing and book-keeping efficient? Thoughts on CPA’s? Myself and others I’m sure would love ideas how they can create more efficiency within their real estate business.
Photo: kozumel