For CRE brokers who are paid 1099, this time of year can be a pain gathering income and expenses for your tax return preparation. We prepare so many tax returns for CRE brokers that we have developed an easy way for you to keep track of expenses and send them to your tax preparer.
Our first recommendation is to keep business and personal transactions separate, always. The best way to do this is by establishing a business (LLC) bank account and a business credit card. Income received from your brokerage firm should arrive in your business bank account. Most expenses you will have can be paid by a credit card. You will pay off the credit card with funds in the business bank account.
Most business credit cards feature an annual spending report that categorizes expenses for the year. This report does most of the organization of expenses work for you. We will ask for monthly statements from your business checking account and the annual spending report from your business credit card. The bank statements will show us cash flows in and out of the account.
You need to monitor how much cash is being deposited and withdrawn from the account and for what purposes. Nearly every cash flow question from your tax preparer can be answered from these monthly statements. They also tell us the beginning and end of year cash balances, which are needed for your balance sheet.
As you pay yourself a salary, those net wages should be withdrawn from your business account. Connecting your business account with your personal account is the easiest way to transfer money out. Other cash withdrawals will be reimbursements for expenses that can’t be paid by the credit card. The two most common expenses that won’t find themselves on a bank or credit card statement are mileage reimbursement and home office expenses.
You should be keeping track of your mileage driven for business purposes. Using an app on your phone is the easiest way to keep track of this. One of the most popular apps we see being used by CRE brokers is MileIQ.
If you’re reimbursing yourself for mileage, then you should not be paying for gas and other auto-related expenses with your business credit card. The mileage reimbursement is repayment from the business for expenses you paid personally.
To deduct the cost of your home office you will need to keep track of all expenses for operating your household. These include mortgage or rent payments, insurance, taxes, utilities, and more. You’ll measure the square footage used for the office and convert it to a percentage of the overall square footage of your home. Then you’ll take the annual cost to operate your home and multiply it by the percentage of your home office to allocate the expenses.
As you get busier, and your time becomes more valuable you might consider offloading all these tasks and organization to a bookkeeper. The better organized you are and the more you rely on other professionals for your financial matters, the more time you’ll have to spend canvassing for your next big transaction.
