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5]
Make Quarterly Tax
Payments
Adopt a quarterly tax payment schedule to avoid penalties and
accruing interest from waiting until the end of the year. It’s easier to
budget and keep your business in better financial standing when you
spread out your income tax payments throughout the year.
As a best practice, set aside money from each closed transaction. Using
a product like Symba will help make these estimates easier, but a safe
estimate for setting taxes aside is 15% to 30% of your gross income.
If you expect to make a similar amount of money as the previous year,
you could look at last year’s tax owed and divide it by four.
Making quarterly tax payments can be easy. Federal taxes can be paid
online through the Electronic Federal Tax Payment System (EFTPS)
where you can schedule payments in advance; it also provides a
record of payment history.
Many states — Illinois included — now allow independent contractors
to pay their state income taxes online through the state's Department
of Revenue website. Some states also allow payments through thirdparty
processors, such as TurboTax or H&R Block. The due date for
quarterly state income taxes varies by state, but it is usually around the
same time as the federal quarterly due dates. Check with your state's
Department of Revenue for specific due dates and filing requirements.
6]
Set Key Performance
Indicators (KPIs)
Depending on your goals, the KPIs you use to track progress are
essential. Spend time at the beginning of the year thinking about what
will be important for your business to take that next step. Maybe
you’re looking to increase profitability per client, increase total sales
volume, decrease the cost to acquire a client or decrease debt.
Whatever you decide to track, clean bookkeeping will help you use
these KPIs to make good business decisions. For instance, you likely
can’t increase total sales volume without spending more on marketing,
meals or gas. If you aren’t taking care of your bookkeeping, how will
you know how much more you spent to increase sales?
7] Create a Budget
The real estate industry, by nature, is seasonal. Your income fluctuates
based on commissions, making it important to create a budget to stay
financially stable. A budget will help you plan for slow periods, track
expenses and account for taxes. Here’s how to build one that will work
for you.
1. First, find your average monthly income. Look at your income
over a period of several months and take the average — this
gives you a starting number to work with.
2. Next, create line items for tracked expenses like marketing
costs, office expenses and any other costs associated with
running your business. Then, you can see where your money is
going and adjust as needed.
3. Taxes are an important budget consideration. Set aside money
for taxes as a specific line item.
4. Preparing for slow periods is another important aspect of
building your budget. Increase savings during high production
times to use during slower times.
5. Finally, utilize budgeting tools and bookkeeping apps to stay on
track with your budget.
8] Find a Good CPA
When your business can afford it, we recommend finding a good
CPA to ensure compliance with tax laws and to help maximize tax
deductions. A CPA can also provide insight into smart future planning.
For instance, how can you optimize your tax deductions? How can
you set up your business for maximum tax efficiency? How can you
properly classify your real estate business as a sole proprietorship,
partnership, LLC or corporation?
Ask colleagues and other real estate professionals for referrals or
search the American Institute of Certified Public Accountants (AICPA)
database. Most importantly, choose a CPA who has expertise in real
estate and understands the unique issues that you face.
By implementing these eight practices in your business, you’ll be able
to make more money and find longevity in the industry!
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