9 Tips to Get your Back-Office Ready for Tax Season
Tax time is undeniably one of the most taxing (pun intended) seasons for brokers. As the backbone of a real estate business, brokers find themselves immersed in piles of paperwork, complex financial documentation, and the intricacies of real estate tax accounting. Adding to this complexity is the unique challenge of managing taxes for 1099 workers, a category many real estate agents fall under. While every real estate business is unique, there are some key things brokers should account for to make tax season run a whole lot smoother. We’ve compiled a few of our top tips to help ensure your back-office operations are seamless, with a sound real estate tax accounting process that sets you up for success.
1. Emphasize the Separation of Personal vs. Business Expenses
This might seem elementary, but it’s critical to understand and educate your agents on the importance of drawing a clear demarcation between personal and business expenses. Given the nature of the job, the lines can often blur; think home offices, cars, or phones used for both personal and work purposes. Ensure you have separate bank accounts and credit cards for your brokerage and personal use to simplify tracking and deductions. Proper categorization — and a clear system to help your agents categorize their expenses properly as well — is vital for accurate real estate tax accounting.
2. Digital Integration is Key
In the age of technology, clinging to old-school pen and paper methods (or even DIY spreadsheets) can turn real estate tax accounting from a predictable pain to a labyrinth of paper trails, especially as your business grows. Adopting a digital-first approach and ensuring your agents are onboarded to it effectively, significantly streamlines processes, reduces errors, and ensures accurate record-keeping. Choosing a back-office software solution specifically designed for brokerages can make the transition even easier.
With the right system, it’s not just time and headaches you save.
“Since working with [MoxiBalance] we have been able to consolidate our back-office and accounting for all five offices into one central location. We eliminated three old positions which for us was a great savings. [T]he integration with DocuSign has helped us build a paperless transaction system. Now our admins and agents can work together on files with just their browser.”
Val and Laki Hatzelis – owners – RE/MAX 10
3. Accounting for the 1099 Worker
Real estate agents almost always operate as independent contractors, and thus they fall under the category of 1099 workers. This distinction is critical in real estate tax accounting because:
- Taxes aren’t withheld from their pay: Unlike W-2 employees, 1099 workers need to manage their tax obligations. Brokers should provide regular guidance to agents about setting aside a portion of their commission for tax purposes.
- Deductions work differently: Real estate agents can deduct a plethora of business expenses, from mileage to home office costs. Ensure you have a system where agents can easily report these expenses.
For more information on 1099 workers and how their taxes are handled differently, check out this blog post.
4. Regularly Update Financial Data
Staying on top of money flowing in and out of your brokerage is next to impossible with lagging data. Encourage agents to promptly report their earnings, expenses, and any other relevant financial data as they occur, lightening your workload closer to tax season when time is precious. Taking a proactive approach (think sending reminder emails and texts, and following up with anyone missing expense submissions) can prevent backlogs and last-minute rushes.
5. Need help? Enlist a specialist
Real estate tax accounting has nuances that not all accountants may be familiar with, particularly for larger or more complexly-structured enterprises. Hiring an accountant who specializes in the real estate industry and regularly works with brokerages can be invaluable. They’ll be aware of specific deductions, regulations, and best practices to ensure you’re not only compliant but also maximizing your returns.
Get your brokerage finances set up for success with an expert consultation from Nimbl — free for all new MoxiBalance customers.
6. Use Cloud-Based Storage
Documents disappear. Hard drives go belly-up. It’s a terrible feeling to lose data, and when it comes to your financial documents, it can have devastating consequences. Don’t worry about it one second more: get a cloud-based solution for a secure and easily accessible place to keep critical financial documents. Make sure your current system is backed up to the cloud (or upgrade to one that is!) so that your essential real estate tax accounting files are safe, organized, and accessible when you need them.
7. Create a Detailed Checklist
As tax season approaches, having a detailed checklist tailored to real estate tax accounting can be a lifesaver. This list should include all necessary documents, deadlines, and tasks. It serves as a roadmap, ensuring nothing falls through the cracks, and that everything gets done in the proper order. Because it’s the backbone of any tax-season strategy, most accounting solutions automatically build this into their interface in one way or another — and upgrading to a professional real estate tax accounting software means you can leverage this right out of the gates. Grab our FREE checklist here.
8. Periodic Financial Reviews
Instead of waiting for tax season to review your financials, set up monthly or quarterly reviews. These periodic checks ensure that real estate tax accounting processes are on track and that any anomalies are spotted and corrected early. You’ll likely need to file quarterly estimated taxes (depending on your structure and the state you operate in) so creating a cadence to audit your books throughout the year and set aside the necessary funds is essential to meeting your tax obligations year-round.
9. Education and Workshops
A well-informed team can be your best ally in the effort to streamline tax season. Consider hosting workshops focused on real estate tax accounting for your agents. These sessions can cover topics like common deductions, how to manage finances as a 1099 worker, a refresher in adding paperwork to your systems, and the latest tax laws and implications. And remember, it’s not just your agents that need education – it’s critical for you to stay up to date on the ever-evolving tax law landscape as well, even if you hire help for tax prep.
Setting aside time to streamline your brokerage’s back-office operations might seem like a headache, but a slow, manual set of systems and processes can bring your productivity screeching to a halt during a busy tax season. Sure, a well-running back office might not be as sexy as a huge marketing campaign, but investing in it can be just as important and profitable for your brokerage. With the right systems, continuous education, and a proactive approach, brokers can not just operate smoothly all year long, but also save themselves and their agents serious money along the way.
Calm The Chaos
MoxiBalance is built to handle brokerage operations with ease at any size, so however you want to grow, your back-office always just works.Explore MoxiBalance