Let’s face it. Unless you love the nitty-gritty details of accounting, you probably don’t enjoy the bookkeeping part of your real estate business. If you are like most people, then you put it off until the last possible moment. Maybe that time comes when your lender is requesting financial statements, or maybe it’s during tax time when you are running around to get your documents to your CPA. Either way, it’s no fun. Let’s discuss some tips that will help you to get your act together so you can approach the bookkeeping side of your business while cool, calm, and collected.
1) Keep Good Records
One of the biggest stressors when it comes to bookkeeping is not having accurate records. Without good records, it becomes difficult to substantiate tax deductions. If you claim a deduction and can’t back it up, you run the risk racking up a large tax bill in the event of an IRS or state audit. Maintaining accurate records can save you time and money. Our firm advocates for a paperless office. Get a Dropbox or Google drive account and save all of your records there.
2) Choose the Right Accounting Software
We see clients that come to us with all types of accounting techniques. Some have hand notes on the back of napkins, while others have powerful property management software. For most property owners (syndicators, buy and holds, and flippers) QuickBooks Online will be your best friend. It is a user friendly software that is robust enough to handle your accounting transactions. Make sure to find some good tutorials for the version you choose. We recommend the “Plus” version which allows you to associate any transaction with its given property. You can even give your CPA access to your account so he/she can assist in real time.
3) Categorize Correctly
Your bookkeeping accounts will vary depending on the type of business you have. For buy and hold investors, check out IRS schedule E to get a feel for the type of accounts you’ll need. For active investors, like realtors and wholesalers, look at IRS schedule C. Those are the accounts that you’ll need to provide info for when your CPA is preparing your tax return.
4) Communicate with Your CPA
As you build your bookkeeping habits and practices, make sure to keep in touch with CPA. He or She will have the knowledge to guide and coach you. Just make sure that the CPA specializes in real estate. Ask your CPA if the chart of accounts is set up correctly and for any other helpful tips.