Let’s be honest, no one likes filing a tax return. This is heightened for those in real estate due to the volume of information that needs to be gathered. Most in the real estate industry have multiple entities with many transactions happening each year – it can truly be overwhelming. I am here to offer some practical tips to simplify and streamline that yearly tax season process.
Keep your accountant updated, throughout the year, on your major transactions.
- Escrows
- Send the escrow as soon as you close. This allows us to review and prepare the journal entries needed to record the sale or purchase to your books and adjust your depreciation schedule accordingly.
- Assets
- Send the car/equipment purchase or sale document as soon as you are done with the transaction. This allows us to help you get it properly recorded or removed to/from your books and depreciation schedule.
- Property acquisitions
- Send the appraisal or cost segregation so we can get the new site set up for depreciation.
- WIP
- If you have WIP that is completed and ready to be placed into service, send us the job costing reports and contractor sheets so we can get it placed into service and set up for depreciation.
- 1031 Exchange
- Reach out to your accountant before you enter into the exchange so we can help you weigh the tax pro’s and con’s before it’s a done deal. Once you close the 1031 exchange, send all the exchange documents over so we can complete the tax calculations now and have the numbers ready to report on the tax forms, come tax season.
- Refinance
- Send the loan refinance documents so we can help you get it properly recorded to your books and can review it for possible debt financed distribution reporting.
- Partnership Investments
- Whether you bought into a new partnership, sold or transferred your interest or had a death of a business partner, we need to know, so we can report it properly.
- Stock Transactions
- Sales of stocks resulting in large gains or losses can impact the accuracy of your tax projection and estimated tax payments.
Organize your books.
Use accounting software to categorize your business transactions on a monthly basis.
- On your own: There are many user-friendly software options out there which will automatically pull your bank and credit card transactions and categorize them based on remembered coding. You simply have to quickly review and confirm everything got coded correctly. This is much less overwhelming when done monthly, rather than trying to tackle a full year at a time, come tax season.
- With assistance: Hiring a bookkeeper is money well spent. It allows you to focus your time on what you do best. For many, having an internal bookkeeper on the payroll is the most cost effective approach. However, if you have a small amount of transactions, you’d do best with an outsource bookkeeper. Many firms, like WHH, have a bookkeeping department that can fill this need for you.
- Consider an interim review. The entities that are the quickest to complete come tax season are the ones we have already looked over during the year. Consider sending your books to your CPA in the fall to allow them to do a quick review and make notes or questions for you based on what they see. You can then complete or correct the changes before you send the final reports for tax reporting.
Keep track of estimates paid.
Keep proof of each tax payment made. Either send your account the proof, as soon as the estimate is paid, or keep a detail list of the date and amount of each payment to supply at tax preparation time.
Communicate life changes.
- Just about all of these impact your tax filings and should be communicated to your accountant throughout the year:
- Marriage or divorce
- Birth of children
- Moving to a new address
- Child attending or graduating from college
- Caring for family members
- Loss of job
Consider your retirement savings.
This is always more of a challenge for the self-employed as it’s not as easy as having a percentage of your paycheck going into your employer sponsored 401(k) plan each month. Talk with your CPA during the year about your circumstances and your retirement contributions goals so we can help you find a solution that best meets your needs. Whether that be a SEP IRA, establishing a 401K, Roth IRA, Traditional IRA, maxing out your spouse’s employer sponsored plan, etc. For some plans you have until 4/15 to make a contribution for the prior year, other plans allow you until 9/15 (if filing an extension) and others need to be made by year end. Early communication is key!
The keys to alleviating tax filing stress is organization and communication. Find yourself an accountant that you can communicate with frequently and regularly – quite literally have them on speed dial! Keep your documents and transactions organized regularly. Trying to remember purchases made and deals done, a year later is challenging. Although it’s hard to want to spend the time and money organizing the financial side of your business, it’s really an integral part of success and will relieve much stress come 4/15.
If you need assistance or guidance related to tax on your real estate investments, click here to learn more about our specialized real estate expertise.
By Sarah Moore
Manager
