While to some business owners, this may seem like a no brainer, we discover quite a few of our new real estate agents that come in for financial guidance are not actually using a separate business checking account for their real estate business. Now, there are really two types of agents that we speak with…

1. The new agent. They don’t have any formal business structure, they are operating under their name and social security number. They may not have many closings under their belt yet, but they are making their connections and learning as much as they can so they can get ahead in the industry. They likely still have a day job, or a side hustle, to help pay the bills while they are making the transition to their new career path.
2. The seasoned agent. They have been doing this for quite some time, they have lots of happy, relocated clients, and this is their full time career. They know they are making money, but are not sure they are doing everything right, financially speaking.

Obviously, there is a third option, the agent who is not new and feels like they are rocking their financial game, but this blog will not focus on them.

Does one of the scenarios described above sound like you? In BOTH options we have met with agents who are running all income and expenses through their personal checking account. This account often times has their spouse’s income direct deposited into it, this is really their only daily checking account, and they pay all of their real estate expenses out of it… as well as their mortgage, kids daycare, salon beauty bills, gym memberships… in other words… all of the “things”.

This stops now.

Whether you are a seasoned agent who has never gotten the financial guidance you need, or a new agent that is still getting your feet wet, you are running a business. One of you may be making more money or have more transactions every month, but both scenarios above are businesses. You need to start treating it like one. That starts with giving it its own checking account.

We are NOT going to talk about entity structures in this post, none of you want me to go off on that tangent! So, at a very top level, if you are operating as an LLC or PA, you likely have a business checking account already. We do occasionally see clients who set up their PA, but never notified their broker, so they are still in essence operating personally, but the vast majority of you have set up a business account. The focus now is for those of you who are operating under your name and social security number… and have one hot mess of a conglomerate bank account.

You will not be able to open a “business bank account”, because you don’t have a formal business set up. However, you can absolutely open a personal bank account, most banks will even let you “nickname” it on your online banking so it is easy to tell apart, and use that account just for real estate activities. This means your commissions go into this account, and you pay any real estate expenses out of this account. You have a business, it should have its own account. This will save you so many headaches at tax time (I hope you are preparing financials more often than once a year but I am going to speak to those who are not). Amazon, hello! Was that a business purchase? Closing gift or new blender? Short of looking up every Amazon purchase, who knows? Target, same struggle. Before you know it, your eyes are spinning and you are truly just guessing. If you use your one bank account for ALL real estate expenses, this takes the guesswork away. You may not remember if it was yard signs or a pretty doormat, but you know is you swiped THAT card, it was for business.

The other thing about your current strategy of guessing? The IRS doesn’t like it. Let’s hope you don’t get audited, but let’s face it, many people have to deal with the IRS at some point in their lives. You don’t want that to be when you have minimal support for proving what expenses go where.

Make your life easier. Open the business account, then use it just for that!

You may also listen to my podcast about this same topic.

Congratulations… you’ve passed the licensing test, and you are officially now a real estate agent!!!! Amidst all of your excitement on making this official, you are also likely somewhat overwhelmed with all of the STUFF you have to do to kick things off on the right foot. One of the most common conversations I have with real estate agents is that they know they need to track their expenses, but they have no idea where to even start. Help me please!

This is actually one of my favorite meetings to have with agents, this means they are proactively thinking forward, and trying to make sure they have all of their hypothetical ducks in a row before things get crazy insane busy for them! I am going to give you 3 tips today to help this overwhelming task seem a bit more manageable.

1. Pick the right platform to help you

Now, I am assuming you have a separate account you are using for your real estate activities (if you don’t, check out my blog post/podcast on this exact topic! . Doesn’t have to be a business account, if you operate under your name and social, this can be just a separate personal checking account you use for business activities. You have a few ways you can keep track of everything. QB is wonderful, this can be done affordably because you can use the online platform and just pay the monthly subscription fee. This will link to your business bank account (business only, not personal use accounts) and you just have to tell QB where to put it. Was that an MLS fee? A closing gift? You tell it that, QB will do the rest. There are some competing software’s out there that are geared specifically to real estate agents, whereas QB is much more universal. These do the same thing, but each platform will have slight differences. The important thing here is to make sure it links to your bank account. I love Realty Zam! Now, if you are super green and are still counting every dollar that goes out of your bank account, you can always use Excel and manually type in each transaction and give it a class. This is as simple as this:

7/2/2020	Amazon	Client Closing Gift	$50
7/5/20	Supra Fees	Dues & Subscriptions	$10

This is fine when you start out, but as you get busier this WILL take lots of time, you will get behind, and you will stress come tax time. Which option you pick is up to you, but the most important thing is that you select the option that works for your budget AND that you can commit to. It does no good to pay for QB if you won’t use it. Whichever option you can stick to is the way you should go. If you know time will be a problem for you, don’t do Excel. Pay for QB, then use it. If you have free time right now and want to save some money, start with Excel. If this gives you a headache just thinking about it, pay someone to keep your books for you.

2. Track your miles

We are NOT going to go into the different ways you can write off your vehicle expenses in this article, never fear, I will do another one on this topic by itself! You need to be tracking your business miles, and we will leave out all the rest for this articles purposes. This is likely your biggest expense, and it is also your most audited expenses (and most loosely tracked). If you are old school, you can keep a notebook in your car and jot down by hand every business mile driven in a pen and paper log. This should look something like this:

 

30,000	30,025	1234 Sky Blvd	Jane Doe
30,042	30,079	77 Sold Rd	John Smith

 

Yet again, this needs to be something you can stick to. If you are more of a technology person, there are some GREAT app’s that track this for you. We love Mile IQ. You then simply “swipe” when you are driving for business, “swipe” when you stop driving for business and start doing personal driving, and the app does all of the rest. You can go in and add notes to the transactions, and the app prepares a great summary, as well as the detail for the year for your records. This is fantastic! If you are going to pick one area to be super diligent, let this be it!!!! You drive  a lot, and should have the support to back it up (should you ever need to prove it). If you ever get audited with no mileage log, and you have to recreate it (by looking at ever single appointment for an entire year) I promise you will be hating life.

3. Have conversations with you tax pro

Keep a listing of questions for your CPA/Tax pro as you have them, too often our agents forget them when they come in. Have open conversations with your pro, frequently, to ensure you are doing the right things and making the right business/financial decisions. There is a LOT to running your business, and it is overwhelming in the beginning. If you don’t ask the questions, or schedule the meeting, we don’t have the opportunity to help you. Many things can happen by having an open relationship with your tax pro…. We can (a) save you $$$ (b) put your mind at ease that you are doing the right things (c) bring up financial info you may not know you need to know that affects you (d) help you structure yourself to be set up for your goals… amongst other things. However, we can do none of this if you don’t reach out. Too many times agents use a DIY tax program because they see that as a space they can save a few hundred bucks. Pay for the tax advice, hopefully we can save you enough money to cover it for you… but if not, we can help you plan and run your business…. A DIY tax software cannot.

As always, please reach out to me if you have any questions on YOUR business, every one is different! I would love to learn more about you, how you run your business, and how I can help you to transition to your next level!

I also did a podcast about this topic. You can listen in here.

The dreaded mile tracking question! While many of our agents are getting better at this, we still see too many who “ballpark” their miles driven. We then get the question: Is that really a big deal? Now, you are asking me, so I am going to go with the law here (of course) and say that yes, it is a big deal. Let’s go into a bit of background first.

The IRS allows you to take either your actual costs of driving your vehicle as a business expense(gas, insurance, repairs, etc) or to track your miles driven, and use the standard business mileage rate. You would then multiply your miles driven for business against this rate, and voila, there’s your expense. For 2021 the standard business mileage rate is .56 cents per mile (it was .575 in 2020). You can’t do both actual costs and miles driven as that would be double dipping. For purposes of this blog, we are going to assume you are tracking miles in lieu of using your actual costs. So, lets’ say you drive 15,000 business miles, your expense on your taxes would be $8,400 (15,000 x .56). Easy enough. However, we will now shift over to the question at hand: how necessary is it to actually track this?

My opinion? Very. Should you get audited, an IRS agent is going to require you to submit your mileage log. This log needs to include the date, beginning odometer, ending odometer, address and purpose of trip for every. Single. Drive. You. Took. If you can’t provide this (because you “ballparked it”), you will either (a) be forced to recreate this from your calendar and will be hating life or (b) your auditor will disallow your miles and you will owe lots of money. Neither of these situations is enjoyable. Miles driven is likely one of your biggest expenses due to the nature of your business, if you are trying to pick one area to be super diligent and on the ball, please let this be it. You will thank me should you ever need to support it to an auditor, and if not, you will rest easier knowing you can easily prove it all.

If you are wondering how to start, there are two main ways to do so:

1. Pen and paper. Believe it or not, we have lots of clients spanning all generations who prefer to just keep a notebook in their center console, and jot it down every time they drive for the day. Again, the headings I noted above are what you need: date, beginning odometer, ending odometer, address/location and a note of some sort. This might look like this:

2/16/21

23,120

23,170

123 Shamrock/West View

Dillon showings

2. Use an app. MileIQ is great! You can download the app (you pay for this one, but there are free ones out there), then simply swipe for business/personal when you start driving, and the app tracks the locations for you. You will still need to add notes, odometer, etc but this makes life so much easier. This then creates a full blown report within the app with your mileage log needed for taxes.

Whichever option you select- pick the one you can stick with. It does no good to start, have good intentions, then trail off in March. You have to commit to tracking this during the year, so go with whichever option speaks to you as being easiest because let’s be real, if it’s not easy it’s not gonna happen.

Here’s my favorite tip- whichever way you go, IRS auditors like to see that your car was actually used and you didn’t magically create all of this in your head. The way they like to prove it? Invoices from third party vendors showing your odometer readings. Yes, even if you are going with actual costs, they will likely ask for this. Take your car in to your favorite mechanic every year in January. Have them do a once over, give you your invoice (with the odometer reading stamped on it) and stick that in your tax file. If you do that every single January, you now have your proof year over year that your car physically traveled during the year. Why January? You can now prove beginning and end of year miles by comparing this January’s invoice to last January’s. December works too.

Tax treatment of the Economic Impact Payments (Stimulus Checks)

The stimulus money you received is not taxable, but you do need to know the amount received in order to properly file your 2020 tax return and to claim the Recovery Rebate Credit if you are eligible.

The recovery rebate credit was added for 2020 as part of the Cares act, to reconcile your stimulus payment on your 2020 tax return. The Appropriations Act of 2021 added additional funds to this credit, which basically served as a second stimulus payment for most taxpayers. If you received the full amount you qualified for in 2020, for both rounds of stimulus, you will not receive the credit and don’t need to do anything further. If you are eligible for the payment but didn’t receive the full amount you’re qualified for, you can fill out the recovery rebate credit section on your 2020 tax return to claim a refund of the amount you were underpaid.

If you received a stimulus payment in 2020, you should receive notice 1444 from the IRS with the amount listed. When your tax return is created the amounts you received are entered to calculate the rebate credit. If you didn’t receive the 1444 and don’t know how much you received, check your bank statement and look for your direct deposit from the IRS Treasury. You can also create an account on the IRS website that will tell you how much you received and when. Go to IRS.gov/coronavirus/get-my-payment to get more information. It’s important to provide this information to your CPA so that you don’t miss out on a credit or inadvertently file for something that you’re not eligible to receive.

Please contact us if you need further assistance in claiming your Recovery Rebate Credit

I have met with several real estate agents this week who have asked some variation of this question: “If I am preparing my own income and expense summary, what am I paying you for? Should I just file on my own?”

This question often arises after speaking with new(er) agents who do not yet have any form of formal accounting, and have not yet had issues with accountants/tax pro’s who screwed their taxes up. The long and short of it is this: someone has to create a summary of your expenses. While we do that often, it is completely separate from preparing and filing a tax return. Our benefit from filing your taxes is because we START with your numbers, but then you get our expertise and knowledge to review them. We do not simply just drop your numbers in our tax software and hit “file”, we analyze them. We compare you to our other agents in similar income brackets to see what you are missing (likely something). We use your expenses as the beginnings of a financial statement (in effect) and build from there. But, someone has to get the numbers out of that messy bank statement and into a format for us to actually hit the ground running. We have a whole lot more value once we get the numbers than just plugging them in as-is!

We also know your industry- you are not our only real estate agent as a client! Based on your numbers, we can launch into conversations regarding entity set up, vehicle purchases, retirement funding, all kinds of different areas that you should be proactively thinking about to reach YOUR goals and set yourself up for financial success. Albeit, not all at once. Big dreams take time and many conversations to reach. There are many options to get there, lots of opportunities and avenues to strategize for saving tax along the way.
We are more than just a data entry number-puncher. We have lots of value and are here to help you realize your financial goals!

Should I be paying quarterly?

One of the big questions we get from our agents that always makes me chuckle (because of how they phrase it) goes something like this: Hey Andrea, my friend/mother/boyfriend told me I should be paying in quarterly. I have no idea what they are talking about, and don’t know what to pay, how much to pay, or even if I am supposed to pay, but should I be doing something with this?
Without diving deep into this, if you are making money, you should be paying in during the year. Remember, if you were ever a W2 employee for someone, every time you got paid your employer kept some of your money and sent it for taxes. This likely happened bi-weekly (or every time you got paid). Enter your life now- nobody does that for you. Because you are running your own real estate business, it is up to you to pay the tax that your old boss used to do. This is done quarterly, and in non-coronavirus, deadline screwing up, years, these payments are due as such: 2021 quarterly payments are due (Q1) 4/15/21 (Q2) 6/15/21 (Q3) 9/15/21 (Q4) 1/15/22. Then it starts all over. The intent is that when you file your 2021 tax return (in this example) you don’t owe anything since you have been paying it all year.

So how much do you pay? This is a pretty heavy question that you should be consulting with your tax pro on. The IRS requires that you be all paid in AHEAD of time, or they hit you with a penalty. You get this penalty even if you fully pay your taxes when you file your return (on time) since you didn’t give it to them in line with the dates I gave you above. Nice, huh? Pay too little in and you get stuck with a big tax bill come tax time (when you thought it was covered) and a penalty for not paying enough, pay too much in and you gave money to the IRS during the year as a piggy bank that you didn’t need to (and you owe back tax, you won’t get it back when you file). The best thing you can do is be on top of your numbers so you know how much money you are making and consult with your tax pro on how much you should be paying. Tax planning is super important here, so please connect with your tax pro to make sure you are in line with where you should be!

I can’t afford to pay my taxes, what do I do??

So many agents that I speak with have at some point had a bit of trouble with the IRS. This typically comes up when you’ve got your first, really good year. Especially if you came from a world where you were an employee and got a W2 instead of having to save yourself. Learning to budget for your taxes, instead of it just happening automatically from a pay stub, is an adjustment. So what do you do when your first giant tax bill comes in, and you don’t have the cash to pay it? Here are my favorite 3 tips on the matter:

1. File the tax return. We see lots of people who see the balance due, freak out, then never file. They take a “what they don’t know can’t hurt me” attitude. It can, I promise. You will eventually need to file the return, then you will be hit with heavy penalties and interest for not filing it and dealing with it when it was due. Unless you think the return is wrong (and in that case seek professional help), file it.
2. Pay the tax. This could mean paying in full, albeit grumbling while doing so, filing an extension, and buying yourself 6 months of time to pay it without “officially” having any tax due on the book with the intent of paying it in full prior to the extended due date or setting up a payment plan with the IRS.
3. Fix it going forward. Likely you will owe again the next year, so to stop the snowball effect, you need to start paying in quarterly during the year (you are in) so when you file the next year’s taxes, you are already paid in full.

I ALWAYS recommend to clients when they have a chunk of money set aside, and can either pay the tax due on the return (but be cleaned out) or do a payment plan and put that money towards the current year taxes (not filed yet) to do the latter. Too often we see them pay off the old tax, then they can’t pay the new tax, and it’s a struggle every year. Fix your mindset so that going forward you are current, pay off the old tax as soon as you can, and then you don’t have to freak during the year because you used all your savings up on last year’s tax bill.

This is an area I love to help with, so please reach out to me if you are in a bind and don’t know what to do. I would love to go through your options with you so you can make the best decision for yourself and your life!