Every tax season I get the same question from my realtor clients, “How can I set up my books and records so that it reduces the time you have to take preparing my return?”
This post addresses that question and might help you to save time with your accountant.
You see, accountants don’t want to spend time organizing client records just to prepare a tax return. We would rather spend the time on more valuable services like advising you on saving taxes and maximizing the profits from your business.
The Schedule C information may be imported into Quickbooks (QB) by:
- Going into Company the Chart of Accounts
- Selecting Account
- Using the pull-down menu choose “Import from Excel”
- Following the instructions, import the chart into QB.
I added tax mapping to the accounts here. This will enable the realtor to simply give his/her QB file to the accountant. The accountant can then import the QB file into their tax preparation software and not manually enter the numbers.
Manual Schedule C Entry
Most realtors report their business income and expenses on a Federal Schedule C. Even if you have an LLC, chances are it’s a disregarded entity for tax purposes and you still file a Schedule C.
Here is a copy of a Federal Schedule C with the relevant items circled.
The first line that we use to report income is Line 1, Gross receipts or sales. This is where the amount from your 1099 goes, or if you have been keeping a set of books the amount of gross commissions you collected goes here.
Line 4 is where we would enter the amount of commissions paid to other realtors out of our gross commissions. If you’re a team leader and you share commissions with team members, but the commissions were reported to you on your 1099, you would enter the total of those commissions here ( and don’t forget to issue them 1099’s)
Advertising goes on Line 8. I advise my clients to only put down advertising that relates to them personally or to their team. This might include magazine ads that are promoting the realtor but not a specific property. IRS looks at certain line items in tax returns for possible audit selection. This is one line item you don’t want too high. We will cover where to put the property advertising further down.
Line 9 is for car expenses, whether you use the mileage method or actual expenses. For bookkeeping, I would only put actual expenses here and let your accountant decide which method should be used for this expense.
If you only paid out a few incidental commissions, you can report them on Line 10, otherwise, they should be reported as previously discussed.
You may have a part-time assistant who does some occasional chores for you but is not really an employee. Their compensation (don’t forget to report this on a 1099) can be entered here on Line 11. Check with your accountant to see if they should be an employee!
E & O and other liability insurance should be entered on Line 15. Don’t enter health insurance, that does not get reported on Schedule C, but in another place on your tax return.
Line 17 is where you report what you paid your accountant and possibly legal fees. Generally, legal fees paid to protect income or property are deductible. Go ahead and report them here and then discuss with your accountant to determine deductibility.
Line 18 is where I deduct office supplies and other overhead types of expenses. Postage and delivery services are usually so low that they can be collected in one place and not reported separately.
Line 20 a and b are for equipment rental ( like a copier) or if your broker uses the old desk rental system of charging you for space that can be reported here.
Repairs and maintenance in Line 21 are for equipment and such. Don’t put car repairs here, they belong in Line 9.
Line 23 is for taxes and licenses. This is where you would report the amount paid to your local board of realtors ( government ) and if you have any employees that you pay taxes for, that would be reported here. Local association dues get reported elsewhere.
Lines 24a is for travel. This is not local travel usually, but if you belong to a national brokerage company and have out-of-town conventions or meetings, the cost of airfare, hotel, taxi’s ( Uber), etc. goes here. Local travel should be reported as such and included in items on Line 27a.
Line 24b is where you report business meals, Starbucks, etc. While none of us had very much, if any this past year, assuming that as restrictions on indoor dining are relaxed, there will be more of this in the future. Under the new entertainment rules, if you take a client to a sports event, the cost of the tickets is not deductible. But if you buy your client snacks while at the event, that cost goes here.
Line 27a details are actually reported in Part V of Schedule C and can be found on page 2. It is up to you how you organize the entries here, but I will share what has worked for my clients.
The first category I use is Client Costs. This is where I report any advertising for specific properties. This is also where I report staging costs and any other costs of selling the property. Even the costs of items you had to pay for at settlement to make sure the deal closes go here.
Telephone and Internet are self-explanatory, as is Continuing Education.
In the DC metropolitan area, we have MRIS and GCAAR that realtors use and pay dues to. There are a variety of services these organizations provide, but the costs of all of them can be entered here.
There are other accounts you may wish to set up, especially if you are trying to monitor certain expenses. It is really up to you and your accountant.
This post is not meant to make bookkeepers out of you, but to provide a framework of record-keeping that could reduce your tax preparation fee or better yet allow your account to give you a higher level of service for the same fee.