The real estate industry has a number of operational issues that keep agents and investors busy throughout the day. There are issues related to rising interest rates, housing affordability, and policy changes that need to be dealt with on priority. There are sales and marketing activities that need to be pursued for new opportunities, and to sustain old ones. New bank laws and statutory regulations require timely analysis to understand how they will affect the current real estate market.
This means, there’s barely any time for agents to deal with something as repetitive, yet important, like accounting and bookkeeping.
Accounting and bookkeeping comprise activities such as posting debits and credits, recording all financial dealings and transactions, and payroll processing. Being a time-consuming and tedious task, it is difficult for real estate agents to perform bookkeeping tasks regularly. However, it is important to be wary of common bookkeeping errors in the real estate industry, in order to prevent them from occurring.
- Not Maintaining Separate Bank Accounts
The real estate business deals with huge amounts of money and it is important to track them in a separate account. However, most real estate agents have one account for both personal and business purposes, making it cumbersome to sift and account for business transactions at the end of the financial year.
Tip – Entrusting your trading account to real estate bookkeeping services can ensure that your business transactions with different clients are meticulously tracked. They produce accurate records that ease the stress of bookkeeping.
- Improper Employee & Expense Classification
In the real estate industry, a number of people are involved in carrying out various tasks. Some of them may be involved in administrative roles, some may be hired based on commission, while others may be analysts and investors. Information related to employees needs to be stored separately, since each employee segment has a unique tax structure to follow. Even one wrong classification of a real estate worker can cost the company penalties and costly audits. In the same way, the company’s expenses also need to be classified under appropriate headings to prevent excess tax payments from being made.
Tip – To classify real estate workers correctly, you can check out the U.S. Department of Labor’s Wage and Hour Division, or your state-specific rules. Third-party bookkeeping partners help classify business expenses and group employees under the right category to ensure the right tax allocation is made.
- Inadequate Backup & Maintenance of Financial Records
Bookkeeping is an exhaustive process, yet a mandatory one, that is essential to meet the year-end financial requirement of filing returns. Therefore, financial records need to be stored safely, in both paper and digital forms. Most often, real estate agents do not take the time to file receipts or update their bookkeeping software regarding new transactions, on a regular basis. At the time of tax filing or an IRS audit, even the smallest receipt will be considered an important proof, and hence all financial records need to be preserved meticulously.
Tip – An external bookkeeping partner will ensure all your financial records are well maintained and safely stored, while also taking a complete system backup of all accounting data on a regular basis.
Real estate accounting and bookkeeping can be complex. It is work that’s best left to qualified experts, so agents can focus on their core activity of building the business. SmartFin has excelled in end-to-end accounting and consulting services for the real estate industry since 2004, offering services such as process reviews, monthly financial statements, filing tax returns and more. With the ability to scale staff when necessary, SmartFin can be your ideal partner for all your real estate bookkeeping needs. If you‘d like to explore working with SmartFin , drop us a line and our experts will get back to you.