Real Estate Accounting: These 3 Mistakes Will Bring Your Business Down

Real estate as an industry has many facets that are confusing, and the accounting part is certainly not as easy as many like to think. The success of your real estate business relies on, among other things, the accounting treatment of various items.

Business owners need to understand how to recognize revenues, expenses, as well as related taxes. Of course, it doesn’t stop at that these three points.

There are many other bookkeeping pitfalls that need to be avoided to be able to operate optimally as a real estate investor or broker. In this article, the focus will be on three major mistakes to avoid as a real estate business owner. Let’s take a dive and try to understand them:

Not Separating Business and Personal Finances

If you’re in business, then you probably know too well how notorious this first mistake is. Many business owners have not mastered the art of meticulous record-keeping. Your accounting system should be able to separate your personal and business finances through proper recording and balancing of respective accounts including the cashbook, bank account, purchases, among others.

The most disastrous accounting mistakes emanate from mixing transactions – either for separate businesses or individuals. Whichever the case, you need to establish a clear path for recognizing transactions from different sources.

Make sure that all transactions such as commissions paid or received, rent paid, unit sales and more receive a data entry line in your accounting system to prevent any future errors in calculations and reporting.

Disbursing Funds Before A Transaction Closes

Even the sweetest of deals sometimes go sour; and if you had issued any funds relating to that transaction, you may be in for a loss. Sometimes things end up changing at the last minute and you need to be ready for that. To keep your books out of the red, you need to disburse funds and actualize any related transactions only after the property is registered under the name of the clients after they pay for the unit, and you’ve handed the keys over.

 Incurring any expenses before the above process takes place amounts to put your business at a risk. Try to explain this to your potential clients in advance to avoid falling victim of a ‘sweet’ deal gone sour which ends up costing you money while leaving your books in a mess.

Wrong Approach to Tax Filing

Improper tax filing will not just affect your business records but it will also get you on the wrong side of the IRS. If you’re going to minimize your taxes, make sure that you know the extent to which you’re allowed under the law.

For instance, avoid exaggerating your expenses (deductions) so you can abnormally minimize your payable tax. The tax regime takes into account all the deductions and even after allowing for all that, you should still end up paying your fair share of taxes. But if that doesn’t happen, it might trigger an audit by the tax body which will definitely reveal your mischief.

Prepare for the tax period in advance to avoid rushing through things when the deadline is almost here. If you don’t prepare on time, you may end up being locked out when the deadline elapses, or your return might contain material misstatements and errors due to filing in a rush.

After all is said and done, everything boils down to engaging a competent real estate accountant who can help you navigate all the technicalities involved in the accounting for this sector. Should you need assistance with your real estate business accounting, go ahead and talk to our team made up of top-industry experts ready to listen and guide you.

We hope to see you on the other side!