Not only do real estate agents have to know their business when it comes to buying and selling property they also need to know about the administrative side of it. Which means knowing what is important when it comes to their taxes.
Get Started The Right Way
As soon as an agent is going to start practicing real estate they need to find the right professional for their financial obligations. This means finding an accountant. It should also be one that specializes in real estate or at least has a good knowledge of the industry.
Deciphering Your Position
How you file your taxes and what your obligations are will depend on your position. For example, whether you are self-employed or are you an employee of the brokerage company that you are connected with. This is something that your accountant will discuss with you. Once he knows what your working circumstances are then he will know which tax category is applicable.
Helps To Reduce Tax Errors
By starting out the real estate career on the right foot when it comes to the finances it helps to eliminate a lot of the mistakes that are commonly made by new realtors when it comes to their taxes.
Allows the Agent To Get Organized
Being organized for tax filings is important. The account will advise as to what receipts need to be kept. This professional will also make suggestions for the bookkeeping needs that come with tracking finances.
Filing Of Taxes
The accountant will take on the responsibility of filing the taxes if the agent retains them for this.
There may be a lot of questions that the real estate agent needs answers to when it comes to their finances. The accountant can help provide these and can also make financial suggestions that may be beneficial.
Creating A System
It is easy for a real estate agent to get disorganized when it comes to their paperwork. When they are on the road they often gather several different receipts. This can easily get lost. One suggestion is to keep a folder in the vehicle where the receipts are put immediately. Then at the end of the day taking the envelope and sorting the receipts into their different categories and put them into files. By making a point of doing this every day it serves a lot of benefits
- It provides a way for not losing the receipts
- It can act as a reminder to get receipts for all that can be claimed by a realtor
- It allows the realtor to remain organized
- It is much easier for the bookkeeper or the agent doing the books to make the proper entries.
- It can save time and money.
- The documents can be properly filed in the event the CRA requests them.
A Separate Bank Account
It is much easier to track the money flow if a separate bank account is kept for the real estate business. If transactions get intermingled with personal finances it can be a nightmare trying to sort these out.
When it comes to bookkeeping realtors have a few options. They can do it themselves or hire a professional to do this for them. For those that want to do their own bookkeeping, they are going to need to know the basics. They will need to know the expenses and income. There are some great tools that a realtor can rely on such as accounting software. These do come with a learning curve but once the realtor becomes familiar with them then it is a big time-saver and ensures the accuracy of the accounting. These are all figures that the accountant will need to prepare the year-end statements and for doing the tax filing.
Keep Track of the GST/HST
This is a responsibility that the realtor may have based on their sales and what they collect. The realtor is holding onto this money in trust for the government. Proper remittance of these must be done and the realtor must be familiar with doing this. There are penalties that will be imposed for not remitting on time.
Tax Deductions and Write-Offs
The tax laws can be complex for any industry and the real estate industry is no exception. For the most part, the realtors will know about the standard deductions that they can claim and their accountant can help to educate them on this. There may be some that are a little more complex. These can include commission rebates. Then there is the GST/HST on the purchases that the agent can claim. This part of the tax system can be really difficult and may be where the agent needs to rely heavily on their accountant.
Don’t Inflate Your Expenses
At times they may be a temptation to inflate the expenses. For example, when the realtor takes their family out for dinner. The CRA tracks these kinds of expenses diligently. If they deem that an expense is being over-inflated they could do an audit of the realtor’s records. Audits can be a real hassle. The best rule of thumb is if in doubt about an expense then ask the experts.
Hang Onto The Records
A common mistake that some new realtors make is not holding onto their documentation such as receipts once the taxes have been filed. The tax department can request to see documents at any time going back several tax years. With the tax laws changing all the time, the realtor needs to check with their accountant as to how long they need to hold onto these.
Every realtor has the responsibility of making sure they put every effort into completing their taxes in the proper manner. It is a good idea to set money aside throughout the year to meet the tax obligations. By doing this it is less likely that the agent will get behind in what they owe the CRA.