Real Estate Business Tips: Documenting Business-Related Expenses for Tax Purposes
This is for informational purposes only and should not be considered Tax advice, please consult your CPA for additional information.
Real estate professionals wear many hats.
One important part of being a real estate professional is generating sales and expanding your network to grow leads.
While growing a business, it is important to consider your online brand and how you can build brand equity using a variety of tools and strategies.
Another side of the real estate business is managing the finances.
Realtors often incur a variety of business-related expenses in the course of their careers. Some of these include travel, meals and other expenses related to client relations, etc.
While these business expenses can be deductible on annual tax returns, it is important for real estate professionals to ensure they take proper steps to document them.
There is no reason to attract suspicions of the IRS and the following tips will help real estate professionals and other business individuals who might incur business-related deductions cover all bases to keep things in order.
Keeping all this data is essential. Take a look at this other post we wrote on “How Real Estate Professionals Can Use Big Data”
Each time you have a business-related expense, remember to document the following:
1. Date –
Most often, the date an expense was incurred will be printed on a receipt or credit card slip. If paying cash, you might want to create a receipt or slip of your own as a reminder. Cancelled checks are also a way to track the date of certain expenses.
2. Amount –
Make sure to document exactly how much was spent. Don’t forget to include tax and tip.
3. Location –
Keep detailed records of the nature and place each business-related expense took place. It’s easy to forget after some time has passed so this is important information to maintain regularly.
4. Business Purpose –
In order for an expense to be business-related, it must be incurred for your business.
Create a record of the purpose of each business expense so that you could show exactly why and how the expense was necessary.
This might include information such as that the expense was needed to obtain new business, to encourage existing business relationships, or to market your products and services. If the purpose of a meal was to discuss business dealings, document that as well.
5. Business Relationship –
This has to do with expenses where entertainment or meals are involved. Keep a list of names of the people involved, their occupations and a record of how they are related to your business.
This type of record keeping isn’t complicated, but it does require diligence.
Keeping organized will only help you when it is time to file your taxes or work with an accounting professional.
A few examples of items you can keep to show business expenses include:
– receipts, credit card statements, or cancelled checks
– receipts in conjunction with appointment book/online calendar entries
– appointment book/online calendar entries (for expenses less than $75)
This post, inspired by a previous entry at Inman.com, is not intended to replace the advice of a certified accounting professional.
We just like to share content that will help real estate professionals grow their careers and have more success!
Let us know if you have any questions, we are always here to help.
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