Running a real estate business comes with its own unique set of challenges. Much of your business is conducted outside of the office, making expense management more complicated than it is for businesses that operate from a fixed location. You have the extra responsibility of holding onto your receipts and later recording and categorizing your expenses when you are in your office.
That being said, proper expense management is an important part of running any business. You can maintain a healthy cashflow and maximize your tax deductions by properly tracking your expenses. In this blog post, we’ll outline the different types of expenses real estate businesses typically incur and provide advice on how they can best be managed.
Common expenses consist of any money your business spends in its efforts to generate revenue. They’re paid for directly with business funds, which makes them easy to track and record in your general ledger. Some examples of common expenses include:
- Advertising expenses – websites, mailing lists, print advertising, online advertising, promotional materials, and logo clothing
- Professional fees – bookkeeping, accounting, and legal fees
- Business travel – cab, bus, train or plane fares, tolls, and parking fees
- Insurance – health insurance, errors and omissions insurance, business liability insurance, and business equipment insurance
- Professional dues and fees – multiple listing service dues and dues paid to the local Chamber of Commerce, realtor associations, and real estate license renewal fees
Common expenses with special rules
Even though common expenses are easy to track, some have special rules when it comes to including them as a tax deduction. For instance, some real estate agents like to give gifts to their clients when a sale closes. The cost is deductible but only up to $25 per client per year. The cost of business meals and entertainment are 50 percent deductible so taking a client to dinner or to a special event can be a beneficial alternative to giving them a gift. You can learn more about the tax implications of giving gifts to clients in this blog post.
However, when businesses unfortunately get audited, it’s sometimes because of these expenses. Be sure to save your receipts and note the purpose of the gift, meal, or event and the client you treated. Additionally, there are reciept apps for mobile phones that we’ll cover more at the end of this blog post.
Special circumstance expenses
Special circumstance expenses generally don’t get paid for with business funds. Because of this, it’s more challenging to record them in your general ledger and extra documentation is needed when you deduct them from your taxes.
Two examples of special circumstance expenses typically associated with real estate businesses are home office expenses and vehicle usage.
Home office expenses are deductible but you need to first make sure your business meets the standards set by the IRS. If it does, you then need to properly calculate the deduction. You can learn more about how to qualify and calculate your home office deduction in this blog post.
The cost of driving in the course of running your real estate business is also deductible. But only certain types of drives are deductible so tracking your mileage is critical. You can learn more about the mileage deduction in this blog post.
Use technology to help you manage your expenses
Real estate agents tend to have a more difficult time managing their expenses than other professions but mobile apps and cloud software can be used to make things easier. Here’s what we suggest you use:
- Receipt app – Instead of stuffing receipts into your wallet, just take a photo of it on your mobile phone. The receipt app will send the details to your general ledger
- Cloud document storage – Get rid of that filing cabinet once and for all. You can store your documents in the cloud so they’re out of the way but still accessible
- Mileage app – You can track the exact number of miles you drive for business. The app will update your records so you're prepared for tax time
- Cloud accounting software – All your business transactions need to be recorded in your general ledger. Cloud accounting software connects with your apps and software so your records automatically get updated
BookKeeping Express (BKE) specializes in accounting and bookkeeping services for real estate businesses. We can help you manage and track your expenses so you can focus on helping your clients buy and sell homes. Visit our real estate agents page to learn more.