1. business and industrial

Track your Escrow
And Business Goals with
QuickBooks
PC Edition
By Abby Barboza
Table of Contents
Course Objectives: ......................................................................................................................4
INTRODUCTION: ..........................................................................................................................5
QuickBooks Online: .................................................................................................................5
QuickBooks for Mac: ...............................................................................................................5
QuickBooks Pro: ......................................................................................................................6
QuickBooks Premier: ...............................................................................................................6
QuickBooks Enterprise: ...........................................................................................................6
Chapter 1 - Setting Up QuickBooks ..............................................................................................6
The Interview Process: ............................................................................................................6
Adding People: ........................................................................................................................7
Adding Products and Services: .................................................................................................9
Lead Center .............................................................................................................................9
Chart of Accounts: ................................................................................................................. 10
Adding Accounts: .................................................................................................................. 12
Adding Sub-Accounts: ........................................................................................................... 13
Adding Items & Services: ....................................................................................................... 14
Modifying Templates:............................................................................................................ 15
Chapter 2 - Collecting Income ................................................................................................... 15
Creating a Sales Receipt: ....................................................................................................... 15
Recording a Deposit: ............................................................................................................. 16
Useful Reports:...................................................................................................................... 17
Chapter 3 - Financial Statements ............................................................................................... 18
Profit and Loss Statement (Income and Expenses): ............................................................... 18
Balance Sheet: ....................................................................................................................... 19
Useful Reports:...................................................................................................................... 19
Chapter 4 - Tracking Expenses ................................................................................................... 20
Writing a Check: .................................................................................................................... 20
Printing a Check: ................................................................................................................... 21
Tracking Marketing Campaigns:............................................................................................. 22
Setting Up Reminders and Goals: .......................................................................................... 22
Useful Reports:...................................................................................................................... 23
Chapter 5 – Receiving Escrow Funds ......................................................................................... 23
Disbursement of Escrow Funds: ............................................................................................ 25
Reconciling Escrow Accounts: ................................................................................................ 25
Banking Center ...................................................................................................................... 26
Balancing the Checkbook and Reconciling Accounts: ............................................................. 26
Tracking Credit Cards: ........................................................................................................... 29
Using the Check Register: ...................................................................................................... 30
Online Banking: ..................................................................................................................... 31
Transferring Money: .............................................................................................................. 32
Useful Reports:...................................................................................................................... 33
Chapter 6 – Creating a Budget ................................................................................................... 33
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Useful Reports:...................................................................................................................... 35
Chapter 7 – Working with Bank-Owned Properties ................................................................... 35
Invoicing the bank: ................................................................................................................ 36
Useful Reports: ..................................................................................................................... 37
Chapter 8 – Property Management ............................................................................................ 38
Setting up Tenants: ............................................................................................................... 39
Setting up Landlords:............................................................................................................. 39
The Property Management Process:...................................................................................... 40
Chapter 9 – Customizing QuickBooks ........................................................................................ 41
Customizing Invoices and Forms ............................................................................................ 41
Creating Statements .............................................................................................................. 42
Depreciation and General Journal Entries .............................................................................. 42
Setting up Multiple Users ...................................................................................................... 43
Chapter 10 - Issuing 1099s ........................................................................................................ 44
Chapter 11 – Cash vs. Accrual Accounting ................................................................................. 45
Accounts Payable: ................................................................................................................. 46
Accounts Receivable:............................................................................................................. 46
Customizing QuickBooks: ...................................................................................................... 46
Customizing the icon Bar: ...................................................................................................... 47
Chapter 12 – Excel for QuickBooks ............................................................................................ 48
Chapter 13 – Word for QuickBooks ........................................................................................... 49
Chapter 14 - Preparing for the Tax Season ................................................................................ 50
End-of-Year Closing Procedures ........................................................................................... 50
Backing Up Data: .................................................................................................................. 51
Sending Information to the Tax Preparer: .............................................................................. 52
Chapter 15 – Tax Saving Strategies ........................................................................................... 53
The Home-Office Deduction: ................................................................................................. 53
Business Travel Deductions: .................................................................................................. 54
100% Entertainment Deductions: .......................................................................................... 55
Health Insurance Deductions for the Self-Employed: ............................................................. 56
Out-of-town Rental Property Deductions: ............................................................................. 57
Bibliography: ............................................................................................................................ 57
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Benefits of Using QuickBooks:
1.
2.
3.
4.
5.
6.
7.
Avoid tax trouble by keeping accurate records
Track your escrow liabilities
Keep date stamp communication logs for each client that will stand in court
Find all legal deductions available to business owners
Uncover marketing campaign results
Track your business goals
Get organized and manage your business:
a. Bank Accounts
b. Budgets
c. Assets
d. Save time with Online Banking
e. Balance your checkbook with ease
8. Profit from better understanding your business
9. Reduce stress by getting ready for the tax season in 3 easy steps
Course Objectives:
Using QuickBooks software, participants will be able to:
1. Develop good bookkeeping practices by following step by step instructions
2. Calculate balances in your escrow account with the click of a button
3. Create date stamp communication logs
4. Reduce tax liability by using all legally allowable deductions
5. Measure marketing campaigns and determine success rate
6. Monitor progress on goals and milestones
7. Save time on data entry by downloading transactions directly from online banking
8. Reconcile a bank account in 15 minutes or less
9. Analyze business statistics
10. Assemble tax-season paperwork and evaluate yearly results
11. Create budgets and monitor progress throughout the year
12. Track Property Management and REO assignments
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INTRODUCTION:
Congratulations on your decision to expand your accounting knowledge. Understanding
accounting is essential to running a successful business. Accounting allows owners to
determine what their company is worth by measuring profits and losses. It helps track
data and collect information about their enterprise in a coherent and reliable way. It also
standardizes reports, regardless of the industry. Most importantly, accounting allows
tracking of responsibilities and enables business owners to stay in compliance with the law.
According to Gary Keller in his book, The Millionaire Real Estate Agent: “You need to
understand where your money comes from in order to effectively build your sales
business. Your Budget Model is about understanding what happens to your money
between the time you receive it (as gross revenue) and keep it (as net income). In short, it
is about expenses or, more to the point, minimizing your expenses to maximize your net
income. (1)”
QuickBooks is one of the most popular software applications for non-accountants because
it runs the accounting processes behind the scenes. Thus, allowing owners to dedicate
their time to understanding the financial statements and taking advantage of the wealth of
information they provide.
This course is designed with real estate professionals in mind and includes step-by-step
instructions on how to apply this technology to the modern practice of real estate.
However, it is a generalized publication not rendering legal, accounting or other
professional advice. Tax strategies and techniques depend on your specific facts and
circumstances. You should implement this information only with the advice of your tax
adviser.
There are different Editions of QuickBooks: Online Essentials, QuickBooks for Mac,
QuickBooks Pro, Premier and Enterprise. Following are the features they offer:
QuickBooks Online:
QuickBooks Online is ideal for real estate licensees that wish to have access “on-the-go” to their
QuickBooks. It also allows the accountant to log in with their own password and make changes.
QuickBooks Online looks and feels different than the PC and MAC editions. There are different
levels within the online family that would accommodate the different needs of the real estate
business.
QuickBooks for Mac:
QuickBooks for Mac has recently been revamped. It provides all the features that any real
estate business needs. It is intuitive and easy to use. It looks a little different than
QuickBooks Pro for PC and there are some features that are not available in the Mac
edition, but for the most part, the functionality is the same.
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QuickBooks Pro:
QuickBooks Pro is the version recommended for any real estate business on the PC version.
It is complete and allows tracking leads with the newly included Lead Center (not available
on the Mac edition).
QuickBooks Premier:
QuickBooks Premier has all the features contained in QuickBooks Pro. In addition,
QuickBooks Premier offers Inventory Tasks and the Inventory Center. However, most real
estate businesses will underutilize this program because they don’t carry inventories.
QuickBooks Enterprise:
QuickBooks Enterprise allows you to work on two companies at the same time. I would
not recommend this edition for real estate businesses, as in my opinion, it will be
underutilized. QuickBooks Pro is more than sufficient for the real estate businesses’ needs.
Chapter 1 - Setting Up QuickBooks
How many companies should you set up?
The IRS expects businesses to clearly show all sources of income and document any
business expenses claimed as deductions. For tax purposes, therefore, it’s best to set up
separate QuickBooks company files for each business entity you report on the tax forms.
QuickBooks Desktop allows you to have as many company files as you like; but, you can
only work on one company file at a time, which is necessary to avoid unnecessary
confusion.
The Interview Process:
1. Start QuickBooks
2. Go to File
3. Select “New Company”
4. Name the Company File and Save location
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5.
6.
7.
8.
9.
10.
A new window opens up. Complete the Company File information
Click “Next”
Select “Real Estate Industry or Real Estate Brokerage”
Select all the accounts you wish to use in the Chart of Accounts
Click “Finish” and “OK”
The Home page will appear
Adding People:
There are four categories of people: Lead, Customers, Vendors and Employees. These
categories are accessed via the menus at the top of the page or through the centers on the
Home page (see the arrows above). The Lead Center is only available in the PC version.
1.
Customers are those who pay you. Sales Associates get paid directly from
the Broker; however, it is possible to also set up Buyers and Sellers as Customers for
QuickBooks purposes only in order to track their statistics. Let’s start by adding a
Customer:
a. Click on “Customer Center”
b. At the bottom left corner there is a + sign, click on it
c. Select “New Customer”
d. Type in Customer information
e. Select the “Additional Info Tab”
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f. Select “Customer Type”
g. Select “Sale Rep,” if applicable. Since there are no names added yet, start
typing the initials. The system will ask you if you wish to set up
h. Select “Set Up” and type the full name. The software will prompt you to
add it. Click on “Set Up.” Select if this sales rep is an Employee or a
Vendor. Click “OK” and complete their contact information. Click “OK,
OK, OK”
i. Now we need to add additional criteria that we will track
j. Edit the Customer by clicking on the top, right corner “Edit Customer”
k. Select “Additional Info”
l. Click on “Define Fields”
m. Complete the list below and click the check mark on Customer: Jobs for
all added lines
i. Select Customer Type (Identify how the customer found you?)
ii. Select Rep
iii. Listing Price
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iv. Sales Price
v. Initial Contact Date
vi. Contract Date
vii. Closing Date
viii. Commission %
ix. Days on the Market (DOM)
2.
Vendors are designated as anyone you pay, for example: subcontractors,
utility companies, landlords, tax agencies, suppliers, etc. When adding Vendors, please
keep in mind that at the end of the year you will need to send a 1099 to some Vendors.
It is easier if the information is collected up front. For that, please go to the Tax
Settings tab, type in the vendor tax ID number and select the check mark “Vendor
eligible for 1099.”
3.
Employees are those you send a W-2 form to at the end of the year. If you
are running payroll, all the information needs to be complete. It is recommended to
request the assistance of an accountant to complete this portion.
Adding Products and Services:
We also need to set up the services we are going to sell to our customers. It is
recommended to use a number as a name and then type a full description (See figure
below). Since the price of real estate services varies, leave it as $0.00. You will have the
opportunity to change it with every sale.
Lead Center
1.
2.
3.
4.
Go to Company and select Lead Center
In the upper left hand corner select New Lead. A new window will open
Type name and contact information
After the Lead has been saved, you can add To Dos, Contacts and Time Stamp Notes.
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Chart of Accounts:
The Chart of Accounts is the back bone of QuickBooks. It allows us to allocate transactions
into the right category. It is like a big chest of drawers where you will file all your receipts.
Each drawer is a different category, for example: office supplies. When you create a new
account on the Chart of Accounts, you must assign it an account type. Below is the
recommended Chart of Accounts for real estate professionals. Please follow the table
below when adding accounts to your Chart of Accounts and only those applicable to your
business model.
It is recommended to keep the names on the Chart of Accounts short and simple because
every account becomes a line on the financial statements. The longer the name on the
Chart of Accounts, the longer the financial statements. A simple way to keep the Chart of
Accounts short is by using sub-accounts.
Account Name
Category
Business Checking
Bank
Business Savings
Bank
Business Escrow
Bank
Visa
Credit Card
Escrow Deposit
Commission Income
Other Current
Liability
Income
Referrals Paid
Cost of Goods Sold
Commission to Agents
Cost of Goods Sold
Advertising and Promotion
Expense
Signage
Expense
Virtual Tours
Expense
Signage
Expense
Magazine
Expense
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Auto
Tolls & Parking
Expense
Expense
Bank Services
Expense
Business Entertainment
Expense
50% Deductible Meals
Expense
100% Deductible Employee Entertainment
Expense
100% Deductible Sales Presentation
Expense
50% Deductible Entertainment
Expense
100% Deductible Qualified Entertainment
Expense
Business Licenses & Permits
Expense
DBPR License Renewal
Expense
Division of Corporation
Expense
Dues & Subscriptions
Expense
Association Dues
Expense
MLS Dues
Expense
Designation Dues
Expense
Insurance
Expense
Errors & Omissions
Expense
Health
Expense
General Liability
Expense
Office Expenses
Expense
Office Supplies
Expense
Contracted Labor
Expense
Phone
Expense
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e-Fax
Expense
High Speed Internet
Expense
Office Equipment
Expense
Printer
Expense
Computer
Expense
Digital Camera
Expense
Professional Development
Expense
Seminars
Expense
Classes
Expense
CD’s/DVD’s
Expense
Conventions
Expense
Professional Fees
Expense
Attorney
Expense
Accountant
Expense
RPAC Contributions
Expense
REO Expenses
Expense
Taxes
Expense
Adding Accounts:
1. From the Home page, under the Company area, click on the “Chart of Accounts” icon
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2. At the bottom, left corner click the “Account” button
3. Select “New”
4. Select the appropriate category from the dropdown menu. Start by adding a bank
account (use the above Chart of Accounts as a guide)
5. Name the account and add a description, if you choose to do so
6. Click “Save” then “Close”
Adding Sub-Accounts:
1. Before adding a Sub-Account, please make sure that the parent account is already
created
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2.
3.
4.
5.
Repeat the account creation procedures
Select the appropriate category for the account you want to add and click “Continue”
Name the Sub-Account
Make sure the check mark by Sub-Account is selected
6. Select the parent account
7. Click “OK”
8. The Sub-Account will appear indented under the parent account on the Chart of
Accounts
Adding Items & Services:
By setting up Items & Services, it is easy to track the production and profitability for each item
sold. In the real estate industry, we sell services like: listing services, buyer’s services, BPO,
property management, tenant placement and others. Items and Services are associated only
with income and expense accounts.
To add items and services:
1. go to the “Items & Services” icon
2. Select Items and click New
3. Select “Services” from the dropdown menu
4. Type the item number, you may use the following table as a reference
5. Type the description
6. Leave the amount at $0.00 unless the cost of the item is always the same
7. Select Account associated with item
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8. You may create subaccounts to keep everything organized
Item Number
1000
1001
1002
1003
1004
1005
2000
2001
2002
2003
2004
2005
Description
Listings
Past Client Referrals
Direct Mail
Cold Calling
Facebook Friend
LinkedIn Contact
Buyer’s Representation
Past Client’s Referrals
CRS Referrals
Blog Inquiries
Signage
Magazine
Associated Account
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Commission Income
Modifying Templates:
1.
2.
3.
4.
5.
From the Home page select “Create Sales Receipts”
From the dropdown menu, above the current template, select “Edit Template”
Select “Fields” in the upper left corner
Select the additional fields you just added to Customer’s Additional Information
Once all the desired changes are complete, go to “File,” “Save” and name the new
template.
6. Close all windows
Chapter 2 - Collecting Income
Creating a Sales Receipt:
Although there are several ways to record deposits, and certainly deposits can be recorded
directly without a sales receipt, it is recommended to create a sales receipt. Creating a sales
receipt allows you to run reports about your business’s profitability, sales percentages and
statistics. Unless a sales receipt is created, the sales information and statistics are not tracked.
So, make sure to create those sales receipts, even if you are downloading the transactions with
online banking. Sales receipts are used to track income that has already been received like
property sales, while invoices are used when future income is expected like the reimbursement
of an REO property expense.
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Before creating a sales receipt, let’s make sure the buyer/seller is part of the Customer list.
In addition, make sure to select the template you wish to use.
1. From the Home page select “Sales Receipt”
2. On the top, left side of the page, select the Customer’s name
6. Select the services to charge to the Customer, ex., Seller’s Representation
7. Type the property address in the Memo
8. Select “Save,” then “Close”
Recording a Deposit:
After receiving the check, it is necessary to physically go to the banking institution and
deposit it so it will reflect on the checking account; or, you may choose to deposit it
directly into your bank account.
If you normally deposit one check at a time, the best option is to select the account for
deposit as soon as you write the sales receipt. However, if you normally deposit several
checks at the same time, you may want to take this additional step to record the deposit so
your reconciliation matches.
1. After the bank account has been created,
2. Under the Banking Center on the home page, select “Record Deposits”
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3. QuickBooks will open the Make Deposits window. If you have multiple bank
accounts, make sure to select the correct bank account
4. Select the deposit from the Payments to Deposit window and click “OK”
5. Under the Received From, select from the drop down menu the Customer’s name
6. Under From Account, leave the preselected Undeposited funds
7. Type the address in the memo line, type in the check number, the form of payment
and the amount
8. Click “OK”
Useful Reports:
1. Sales Graph: This graph will automatically show you the busiest and slowest
months of the year so you can plan accordingly
2. Sales by Item: Shows totals and percentages of how many listings and buyers you
serviced throughout the year
3. Sales by Customer: Shows a list of all transactions and the totals per customer
1. Go to Report Center
2. Select “Sales”
3. Select the appropriate report
4. Sales by Rep: Shows a list of the transactions according to Sales Rep
5. Customer Contact List (Modified):
1. Go to Report Center
2. Select “Customers and Receivables”
3. Select “Customer Contact List”
4. Select “Options”
5. Select “wanted columns”
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Chapter 3 - Financial Statements
Profit and Loss Statement (Income and Expenses):
The Profit and Loss Statement is a financial movie of your company. It has a defined start
and end date, both shown at the top of the report. The bottom line, the net income or
loss, shows the end of the movie. Some companies have a good ending, others don’t.
The Profit and Loss Statement has four parts. It follows a mathematical equation: Income
- Cost of Goods Sold – Expenses = Net Income. The net income could be considered the
most important line on the report. The Cost of Goods Sold is the cost of goods, materials
and services that were sold. In the real estate industry, most brokerages offer services
only. In this case, the Cost of Goods Sold are referral fees paid to another broker and
commissions paid to independent contractors.
Profit & Loss
January 1 through Dec 31, 20XX
INCOME
Commission Income
BPO’s
Total Income
$100,000
$5,000
$105,000
COST OF GOODS SOLD (COGS)
Outgoing Referrals
Closing Gifts
Total of COGS
Gross Profit
$25,000
$3,000
$28,000
$77,000
EXPENSES
Office Rent
Office Supplies
Telephone
Assistant Services
Utilities
MLS & Board Dues
Total Expenses
$18,000
$5,000
$1,100
$30,100
$2,500
$1,200
$57,900
NET INCOME
$19,100
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Balance Sheet:
The Balance Sheet is a financial picture of the company. It shows where the business
stands at a particular date. The Balance Sheet reflects the accounting equation: Assets =
Liabilities + Equity.
Balance Sheet
As of Dec 31, 20XX
ASSETS
Checking
Savings
Office Equipment
Total Assets
$16,100
$30,000
$5,500
$51,600
LIABILITIES & EQUITY
Liabilities
Credit Card
Total Liabilities
$2,500
$2,500
Equity
Retained Earnings
Net Income
Total Equity
Total Liabilities & Equity
$30,000
$19,100
$49,100
$51,600
Useful Reports:
1.
a.
b.
c.
d.
2.
a.
b.
c.
d.
Profit & Loss Statement: To print a Profit & Loss Statement, do the
following:
Go to Report Center
Select “Company and Financials”
Select “Profit and Loss Standard”
Notice the date
Balance Sheet: To print a Balance Sheet, do the following:
Select the Report Menu
Select “Company and Financials”
Select “Balance Sheet Standard”
Notice the date
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Chapter 4 - Tracking Expenses
Writing a Check:
1. In the Banking area of the Home page, click “Write Checks.” QuickBooks
displays the Write Checks window, shown below
2. The Bank Account field shows the account from which you are writing this
check. QuickBooks displays the current date in the Date field
3. In the Pay to the Order of field, type the vendor’s name
4. Press “Tab” to move to the Amount field
5. Type the amount of the check, and then press “Tab.” Notice that QuickBooks
spells out the amount of the check for you on the line below the payee
6. Click in the Account column on the Expenses tab, and then choose the
appropriate account
7. Assign a Customer, if this expense is going to be calculated on the Profitability
Report
8. Unselect the check mark under billable
9. Click “Save,” then “Close”
IMPORTANT: when writing a check that is related to an “Item & Service” click the “Tab
Item.” Selecting the appropriate Item will allow you to run the “Item Profitability Report”
and keep track of your profitability.
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Printing a Check:
1. In the Banking area of the Home page, click “Print Checks.” QuickBooks opens
the Select Checks to Print window
2. Select the checks that you wish to print
3. Confirm that the correct bank account is selected, then Click “Print,” and a new
window opens
4. Select the correct printer
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5. Select the proper check format
6. Click “Print”
Tracking Marketing Campaigns:
In order to track Marketing Campaigns, under Customers, complete the tab under Additional
Information and select the Customer Type. This process will allow you to run reports later on
and determine the profitability of each campaign.
Setting Up Reminders and Goals:
QuickBooks now has a calendar where all transactions are conveniently displayed. This
calendar is the perfect place to write your goals for the year in the form of To Dos and Tasks.
You can conveniently access this information from the main menu and mark off each item as
you complete it.
1. Go to the Company menu
2. Select “To Do Lists”
3. Select “+” on the left, bottom corner
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4. Type in your To Do under note and select “Due Date”
5. Select “OK”
Useful Reports:
1. Job Profitability Summary: Shows an overall profitability report for the entire list of
Customers
2. Item Profitability: Shows the profitability per service provided
a. Go to the Report Center
b. Select “Job, Times and Mileage”
c. Select the appropriate report
Chapter 5 – Receiving Escrow Funds
When it comes to protecting the public, accounting for all funds is a number one priority.
Often, handling escrow funds is a delicate issue that brokers don’t want to tackle.
However, since mishandling of funds is the number one licensee’s violation, it is in our best
interest to understand the rules and follow them.
According to Florida Administrative Code 61J2-14.009, a Sales Associate is required
to deliver the deposit to his or her broker no later than the end of the next business
day following the receipt. The broker is responsible for immediately placing the
money into an escrow account. Immediately is defined in Rule 61J2-14.008(3) as no
later than the end of the third business day following the receipt of the item.
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It is important to know that escrow accounts are for the purpose of holding someone else’s
money and under no circumstance should a licensee commingle funds with those of the
brokerage. In addition, we need to keep all deposit slips, statements and escrow disbursement
forms. QuickBooks allows us to account for all funds, which is a mandatory requirement
regardless of the form of representation used.
According to the Florida Realtors Magazine Legal Questions and Answers section of
the March 2014 issue, brokers may use multiple escrow accounts if it is easier to
reconcile, but it is not necessary to have separate accounts for sales and property
management or for individual properties.
When holding escrow, brokers must have at least one escrow account. Some recommend
having as many as three escrow accounts. One to hold sales escrow deposits, one to hold
landlord deposits and one to hold tenant’s deposits. Having so many escrow accounts is not
mandatory, but it can simplify our operation.
According to Florida Administrative Code 61J2-14.010, a broker is allowed to place up
to $1,000 of brokerage funds in each sales escrow account and up to $5,000 in each
property management escrow account.
When setting up an escrow account, we will use the instructions to create a bank account and
input the required information. After the main account is set up, we will create sub-accounts,
each with the name of the escrow we are holding. As a result, with just a quick glance on the
Chart of Accounts, we can quickly tell how much money we are holding in each escrow (see
example below). Notice that the main account shows the entire balance.
When receiving a new escrow, here are the steps to follow:
1. Create a main escrow account.
2. Create a sub-account with the name and/or address as an identifier
3. Create a deposit and make sure to select the sub-account you just created, ex.: John
Doe
4. In the memo, identify the reason you are holding the escrow
5. Select the Customer’s name
6. Under account name, select “Escrow Deposit”
7. In the memo, type in the method of payment, check number, if applicable, and amount
8. To verify the entry was completed, go to Reports and look at the standard Balance Sheet
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Disbursement of Escrow Funds:
When disbursing escrow funds, write a check from the sub-account you are getting ready to
disburse, ex.: John Doe
1.
2.
3.
4.
From the Home Page go to Write Checks
Select “Sub Account,” (ex.: John Doe)
Select “Check Number, Payee and Amount”
Under Account select “Escrow Deposit” (type memo, ex.: Close of Escrow) and
Customer
5. Go to the Balance Sheet to make sure the escrow was closed. If there is no balance on
the account it will disappear from the report
6. You may also go to the Chart of Accounts and verify the balance is now 0
7. While on the Chart of Accounts, double click on the account and you will be able to see
the register (see the example below)
Reconciling Escrow Accounts:
According to Florida Administrative Code 61J2-14.012, a broker must make a monthly
reconciliation written statement comparing the broker’s total liability with the reconciled
bank balance(s) of all trust accounts. The broker can use any form he or she wishes;
however, the form must include the following elements: 1. Date of reconciliation; 2. The
date used to reconciled the balances; 3. The name of the bank; 4. The name of the Account;
5. The account number; 6. The account balance and dates; 7. Deposits in transit; 8.
Outstanding checks identified by date and check number; 9. An itemized list of the
broker’s trust liability and 10. Any other items necessary to reconcile the bank account
balances. The broker must review, sign and date the monthly statement.
When reconciling escrow accounts, we are going to follow the same instructions as reconciling
any bank account explained in detail below. Because this account has sub-accounts, we are
going to select only the main account to do the reconciliation so the balances match with the
bank statement.
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A real estate broker has two choices, one print the reconciliation reports in QuickBooks or to
complete the Monthly Reconciliation Form required by the state.
Banking Center
Balancing the Checkbook and Reconciling Accounts:
Reconciling is the process of making sure that your checking account records match the
bank’s records. When you keep your records with QuickBooks, you don’t have to worry
about addition or subtraction errors, like you do when you’re using a paper check register.
Even so, it is important to get in the habit of reconciling your QuickBooks’s bank accounts
on a monthly basis. This helps you avoid overdraft charges for bad checks, gives you a
chance to spot possible bank errors, and helps you keep more accurate financial records.
Your bank sends you a monthly statement for each of your accounts. The statement shows
all the activity in your account since the previous statement: the opening balance, the
ending balance, the amount of interest earned, if applicable, any service charges, checks
that have cleared, deposits you’ve made to the account and any other transactions that
affect the balance of your account (for example: automatic payments, deposits, or ATM
withdrawals).
When you receive a statement from your bank or from a credit card company, you need to
reconcile that statement with your QuickBooks records. You can reconcile any
QuickBooks’s bank account, including accounts for savings, money market funds and even
credit cards.
The goal of reconciling is to make sure that your QuickBooks’s records and the bank’s
statement agree regarding your account balance.
To begin reconciling an account, you need to tell QuickBooks which account you want to
reconcile. Then you can provide information from the top part of your bank statement.
To reconcile your account:
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From the Banking menu, choose “Reconcile.” QuickBooks displays the Begin Reconciliation
window
1. In the Account field, make sure the correct account is selected
2. Type in the statement date
3. Type in the ending balance shown on your bank statement. The beginning
balance will be there for you from the previous month; or, it will show the
opening balance if this is the first reconciliation
4. In the Service Charge field, type in the amount, if any
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5.
6.
7.
8.
Type in the date of the charge
Under Account select “Bank Charges,” if applicable
Type any Interest Earned and the date, if applicable
Click “OK.” QuickBooks displays the Reconcile window
9. One by one, select the items in the checking window that coincide with your
bank statement. QuickBooks places a checkmark to the left of the item. If you
need to make a correction to a transaction before you reconcile the account,
double click on the transaction and QuickBooks takes you to it and allows you to
return to the reconciliation without losing your work
10. Once all transactions are selected and the difference amount is $0.00. Click
“Reconcile Now.” QuickBooks displays the Select Reconciliation Report window
11. In the Select Reconciliation Report window, select the report you would like to
view
12. Click “Display”
13. Click “OK” on the message that QuickBooks displays. QuickBooks displays both
the reconciliation summary and reconciliation detail reports
14. Examine the reports to learn what they show, save it as a .pdf file, if you wish
to, and then close the report windows
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Tracking Credit Cards:
Many businesses pay for expenses with a credit card rather than a check. For travel
expenses especially, a credit card is invaluable because it gives a detailed listing of each
charge. You can track credit card transactions in QuickBooks just as easily as you track
expenses you pay for by check.
Set up a QuickBooks credit card account for each credit card you use in your business. Like
any QuickBooks account, a credit card account has its own register. The register lists all
the charges and credits you've recorded, as well as, payments you've made. It works just
like any other register.
1. When registering expenses and credit card charges, it is necessary to create a
Credit Card account on QuickBooks. In the Company Section of the Home page,
go to Chart of Accounts
2. Select the account drop down menu
3. Create a new account
4. Select “Credit Card” and click “Continue”
5. Name the account and click “Save,” then “Close”
6. Go to the Banking area of the Home page, click “Enter Credit Card Charges.”
QuickBooks displays the Enter Credit Card Charges window
7. In the Credit Card field, select the correct credit card from the drop-down list (if
it’s not already selected).
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8. In the Purchased From field, select the vendor’s name from the drop-down list;
or, simply start typing it. QuickBooks will reduce the selection for you
9. Complete the Amount field
10. Click the “Expenses” tab (if it’s not already selected)
11. In the detail area, click in the Account column and assign the charge to the
respective expense account
12. Click “Save,” then “Close” to record the transaction and close the window
Using the Check Register:
1. In the Banking section of the Home page, click on “Check Register”
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2. Select the account you wish to review
3. Click “OK.” The register opens up
Online Banking:
Online banking facilitates the transaction and saves time. There are different levels of online
banking; the availability is going to be determined by the participating banking institution.
From the Banking Menu, select “Online Banking” and then “Set Up Account” for Online
Services. QuickBooks will open up a window.
1. Select your QuickBooks Account and click “Next”
2. Select your banking institution and click “Next”
3. Select the type of online banking you wish. Fees may apply; so, contact your banking
institution for more information
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4. Direct Connect usually allows you to write checks and make payments directly from
QuickBooks
5. Web Connect allows you to download the statement without having direct access to
write. Web Connect is usually free; and, what I personally use
6. You will have to log into your banking institution in order to do so
7. Follow the instructions on the screen
Transferring Money:
When moving money among your accounts, it is recommended to use the Transfer Funds
menu.
1. From the Banking Center, select “Transfer Funds”
2. Select the “From and To Account”
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3. Review the check register on both accounts to make sure the transfer was
successful
Useful Reports:
1. Deposit Detail: Allows you to verify all deposits
2. Missing Checks: Allows you to see all the check numbers in order and determine if
there are any missing checks
a. Go to the Report Center
b. Select “Banking”
c. Select appropriate report
Chapter 6 – Creating a Budget
A budget is an extremely useful financial tool. It allows for visualizing and planning the income
and expenses for the month and year. The budget shows all income and expense accounts,
when based on the Profit & Loss Statement Report. However, it is important to also plan for
savings and reserves. According to Dave Ramsey, in his book Financial Peace University
(Ramsey 16), everyone should keep 3 – 6 months of savings in a rainy-day fund. The same
concept applies to businesses. Every expense, that is not an unexpected emergency, should be
budgeted.
1. Go to the Company Center
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2. Select “Planning and Budgeting”
3. Select “Set Up Budgets”
4.
5.
6.
7.
Select the appropriate year for the budget
Select “Profit and Loss” and click “Next”
Select “create from scratch,” unless you have data from previous years
A new window with the income and expense accounts will open up, select “amounts per
month,” or choose to copy the same amount by clicking “Copy Across”
8. Select “Save “
9. Select “OK”
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Useful Reports:
1. Budget vs. Actual: Compares what you budgeted with the actual income and expenses
a. Go to the Report Center
b. Select “Budget and Forecasts”
c. Select “Budget vs. Actual”
Chapter 7 – Working with Bank-Owned
Properties
When dealing with REO properties, we normally have a few customers with a number of
assignments/properties each. In order to keep better control of the utility bills, security
deposits, invoices and reimbursement checks, we will use Invoices and Bills.
The look of the screen will change after we activate those sections (please see below).
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Set up Customers as Accounts and the properties as Jobs.
For example:
Bank of America (Customer)
123 Main Street (Job)
456 Fort Blvd. (Job)
Invoicing the bank:
Part I:
1. When registering expenses and credit card charges to pay for reimbursable services on REO
properties, use the REO Expense Reimbursement Account
2. Write the check or credit card entry as explained earlier
3. From the drop down menu, select the “Customer:Job.” QuickBooks automatically selects the
billable option next to the customer’s job
4. Click “Save,” then “Close.”
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Part II:
1. When you are ready to invoice the customer, go to the Customer’s area of the Home page
and select “Create Invoice.” QuickBooks opens the invoice window
2. At the top left, select the customer’s name. QuickBooks will display the Billable Time/Cost
window
3. Select the outstanding billable time and costs to add to this invoice
4. Click “OK.” QuickBooks displays the Choose Billable Time and Costs
5. Select the expenses you want to invoice by clicking on the left side of the entry
6. When you are done, click “OK.”
7. Add appropriate terms and Customer message, if desired
8. Click “Save,” then “Close”
Useful Reports:
1. Unbilled Cost by Job: Displays any expenses that have not been billed
2. Open Invoices: Shows the list of invoices that have not been paid to-date
a. Go to the Report Center
b. Select “Customers and Receivables”
c. Select appropriate report
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Chapter 8 – Property Management
The first step in setting up a Property Management business in QuickBooks is to set up the
classes. Classes are used to track income and expenses for separate segments of a business.
They can be used to track different departments, programs, profit centers, etc. We will use
them to track individual properties.
1. On the Edit menu, select “Preferences”
2. From the left-side column, select “Accounting”
3. Select the “Company Preference Tab”
4. Select “Use Class Tracking” and press “OK”
5. Under the Lists menu, select “Class List”
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6. At the bottom, left corner, select the “Class button”
7. Select “New”
8. Type in the Name
9. Click “OK”
Setting up Tenants:
Tenants are set up as Customers. Prior to setting up the tenant’s name, it is important to
identify the best name for the tenant. For example, if it is easier to identify the tenant by the
unit number, use that in front of their name. Suppose the property address is 2231 Cascades
Blvd., Unit # 202 and the tenant’s name is John Doe. The naming structure could be 2231#202John Doe. This method doesn’t require the bookkeeper to remember all the tenants’ names.
It is important to remember that when the entire list of properties is entered, it can get
cumbersome if you don’t remember each of the tenant’s names. With this naming structure,
you can simply type the beginning of the address and let QuickBooks find it for you.
Setting up Landlords:
Landlords are set up as Vendors. Remember that at the end of the year, it is your responsibility
to issue a 1099 to each landlord reporting their income to the IRS.
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The Property Management Process:
After setting up all the players, then we need to be aware of the process. Once the process is
established, it really becomes a breeze to process rents. The following spells out the
procedure:
1. Invoice for the escrow deposit money
2. Receive the payment
3. Deposit it into the escrow account
4. Invoice the tenant for the monthly rent
5. Memorize the invoice
a. With the invoice you want to memorize open, select “Edit”
b. Select “Memorize Invoice”
6. Set up a bill to pay the landlord his/her portion of the rent
a. Click on “Enter Bill”
b. Select “Landlord’s Name”
c. Complete the rest of the bill
d. Select “Distribution to Landlord Account”
e. Select “Customer”
f. Select “Class” (property address)
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7. Memorize the bill
a. With the bill open, select “Edit,” then “Memorize Bill”
8. When the rent money is received, apply the payment toward the invoice
9. Pay the landlord’s bill
10. Pay the sales associate, if applicable
Chapter 9 – Customizing QuickBooks
Customizing Invoices and Forms
In order to customize forms, we need to open the form we want to modify. Let us take for
example the invoices. Please follow the following steps:
Open up the invoice windows. At the top of the form, select the drop down list next to
the Customize icon and select “customize design and layout”
A new window opens up. Select from the top of the window “create a new design.” The
QuickBooks Forms Customization window will open up
Select the background you would like to use. At the top, left corner, there is a place to
add your company’s logo. Click “Add,” browse your picture file for the logo and click
“Upload”
By double clicking on the background that you like, you are able to see a sample of your
work on the right side of the window. Once you have selected the background and
added your logo, click “Next” above your sample form on the right side of the window
Select changes to the Font and display appropriate company information and click
“Next”
Select the grid style you would like to use on your forms and click “Next”
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Review your design and click “Next.” If you are satisfied with your selection, click
“Continue”
The Apply Design window opens up. Select the forms that you wish to apply the
selected format to by leaving the check mark on the left side of the form. Should you
decide not to use the new format for a particular form, please feel free to uncheck that
selection. Click “Apply.” QuickBooks notifies you that the new design has been applied.
Click “OK” to the notification. Name your design online and click “Save.” If you already
have an online account, you may log in at this time
QuickBooks will notify you that a new default template has been detected.
Furthermore, it will ask you if you wish to use the new default template for the current
transaction. Click “Yes” and proceed to create your invoice. You may verify your
template by clicking on “Print Preview” in the upper, right corner above the invoice
number.
Creating Statements
When creating statements, QuickBooks produces a summary of the Customer and its Jobs. This
is very useful when working with Property Management. Creating a report will show all activity
for a Customer and all its Jobs. To create statements, it is necessary that the icon is activated
on the preference.
1.
2.
3.
4.
5.
6.
Go to the Edit menu, select “Preferences”
On the left side corner, select “Desktop View.” Click on “Company Preferences”
In the Customers Section, select the “Statements and Statement Charges”
Click “OK”
From the Customers Section of the Home page, select the “Statements” icon
Select the statement date, statement period and whether you want all customers or
one
7. You may preview the statement before printing or emailing for quality control
8. Finally, select “Print” or “E-mail”
Depreciation and General Journal Entries
Occasionally, you may need to change the balances of your accounts in the Chart of Accounts.
These entries are called general journal entries. It is highly recommended to use the help of
your tax preparer in order to make these entries since making a mistake can unbalance the
books.
1. From the Company menu, select “Make General Journal Entries”
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2. Enter the information in the Make General Journal Entries window
3. Click “Save,” then “Close”
Setting up Multiple Users
1.
2.
3.
4.
The first step in setting up multiple users is to switch to the Multiple-Users Mode
Go to File
Select “Multiple-Users Mode”
QuickBooks will prompt you to accept the changes and it will make you aware of the
possible requirement for multiple licenses
5.
6.
7.
8.
In order to make these changes an administrator must be logged in
To set up users, go to the Company Menu
Select “Users”
Select “Set Up Users and Roles,” as desired
QuickBooks allows you to set up multiple users for the convenience of limiting some of the
users access and keeping track of who is changing or modifying the file.
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Chapter 10 - Issuing 1099s
At the end of the year, you are required to send a 1099 form to everyone you paid over $600.
QuickBooks allows us to process these forms with ease.
1.
2.
3.
4.
5.
6.
7.
From the Report Center Menu, select “Vendors and Payables”
Select “1099 Summary”
QuickBooks will run the report with all the vendors and the amounts paid
After verifying all tax ID numbers and amounts are correct
Go to the Vendor Menu
Select “Print/E-file 1099s”
Select “1099 Wizard”
8.
9.
10.
Select “Get Started”
Verify Vendor’s information and click “Continue”
From the drop down menu, select “apply payments to this box.” Within the
real estate industry, the most commonly used are Box 1 for Rent or Box 7 for
Non-employee Compensation. If you are unsure, please contact your
Accountant
Select “Continue”
View Included Payments and select “Continue”
Select if you would like to Print or e-file
If you select Print, you can purchase the forms from an office supply store or
from QuickBooks directly
If you select e-file, fees apply
11.
12.
13.
14.
15.
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Chapter 11 – Cash vs. Accrual Accounting
Cash Accounting Method and the Accrual Accounting Method differ on the time in which the
transaction gets recorded. The Cash Accounting Method is mostly used for small businesses. It
records transactions when the actual cash or income is received; or, when the expenses are
paid.
The Accrual Accounting Method, on the other hand, records transactions when the order is
made, the item is delivered or the services occur, regardless of when the money is exchanged.
QuickBooks allows you to go back and forth between the two methods by changing the
selection on the reports. To find which accounting method the report is using, look at the
upper left hand corner, where it will be specified. In order to change the reports, follow the
below steps:
1. Select the desired report. For example: Profit and Loss Statement
2. Select “Modify Report”
3. In the middle of the window, select the method of recording you would like to use
Another way to select Cash vs. Accrual Accounting is by setting preferences:
1. From the Edit menu select “Preferences”
2. Select “Reports and Graphs,” then under the Company Preferences tab, select “Cash”
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Accounts Payable:
When working with the Accrual Accounting Method, accounts receivable and accounts payable
accounts are created by QuickBooks. Accounts Payable is everything you owe. The easiest way
to activate them is to record bills on the Home screen. Once the pay bills feature is turned on,
QuickBooks automatically sets up the accounts payable register. You will be able to find the
register on your Chart of Accounts. To turn the pay bills feature on, go to Edit, Preferences,
Desktop View, Company Preferences and select the features you want on your home page.
Accounts Receivable:
Accounts Receivable gets activated every time we create an invoice. Account Receivables are
all outstanding monies the broker expects to receive as payment for your services. Just like
Account Payables, QuickBooks creates the Accounts Receivable account automatically when the
invoice feature is turned on. You can turn the invoices on either during your Easy Step
interview or by using the following steps: to turn the pay bills feature on, go to Edit,
Preferences, Desktop View, Company Preferences and select the features you want on your
home page.
Customizing QuickBooks:
There are many choices when customizing QuickBooks. In order to change your preferences,
go to Edit and then select the “Preference” menu. A new window opens up showing the
different categories on the left side. Please notice that there are two tabs on the right side of
the window: My Preferences and Company Preferences. Changes to My Preferences affect
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only you, changes to Company Preferences affect all users of QuickBooks (only the
administrator can change the Company Preferences).
Some of the changes you can make are:
Accounting Preferences
Checking Preferences
Desktop view Preferences
Reports and graphs and more
Customizing the icon Bar:
To add a transfer fund to the icon bar follow the below steps:
Go to the Banking menu and select “Transfer Funds”
From the View menu, select “Add Transfer Funds Between Accounts” to icon bar
Select an icon
Click “OK”
Another way to customize the icon bar is by selecting the arrows on the right hand side of the
ribbon:
Select “Customize Icon Bar”
Add or remove buttons and select “OK”
Creating Custom Fields
o Open the Customer Center and select the Customer
o Under the info tab, select the “Define Field” button
o Name the field you would like to add and select the center it applies to
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o Enter type of data and requirements
o Run the report by going to the Reports Menu, then Lists, then Customer
Phone List. Modifying this report allows the broker to keep all pertinent
statistics in QuickBooks.
o Click on “Modify Report,” a new window opens up
o On the display tab under the column, go all the way to the bottom to see the
custom fields, select “Birthday” and click “OK”
Profit and Loss by Classes:
o When working with classes, one can run a Profit and Loss Statement for each
individual class. This is especially helpful when working with property
management. Each individual property can be set up as a class, then we can
run the Profit and Loss Statement and modify it like this:
Go to Reports and select “Company and Financials”
Select “Profit and Loss Statements”
Under Date, select the time period you would like to see
Click on “Modify Report”
Click on the filter’s tab. Under filter, select “Class.” Then from the
drop down menu, select the class you would like to see the Profit and
Loss Statement for
Click “OK”
Every time you elect to modify a report, QuickBooks will ask if you
would like to save it
Chapter 12 – Excel for QuickBooks
Excel is a great tool when working with QuickBooks because it expands the reporting, graphing
and analysis capabilities.
When working in real estate, one of the most common applications is to create reports for our
landlords. Let us use, for example, the scenario where we need to produce a monthly Profit
and Loss Statement for our landlord. After activating the classes, we can create a report; and,
with simple changes, we will have the desired report on Excel.
1. From the Report menu, select “Company and Financial” and then “Profit and Loss
Standard”
2. Select the appropriate dates you want the report to reflect
3. Click on “Modify Report”
4. Under the filter tab, select “Class”
5. Under the Class drop-down menu, select the property you want to create a report on
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6. Select “OK”
7. Select the “Export” icon. QuickBooks will open an Export window
8. Select to create “a new Excel workbook”
9. Click “Export.” QuickBooks will open Excel automatically
10. The current report reflects the income of the company as property management
income. However, we want to change it to reflect the owner’s net income instead of
ours. To accomplish that, change the name of Distribution to landlord and replace it
with: Property Management Fees
11. Replace the amount of the now Property Management Fee for the current Net Income.
Excel will automatically replace the amounts and reflect the net income for the owner
12. To rename the worksheet, right click the tab you would like to rename
13. Select “Rename”
14. Right click the tab, select “tab color” and then the color you would like to add to the tab
15. The title of the report for QuickBooks does not show up on the spreadsheet, but it will
show up as a header when you print it. In order to remove the header, go to the insert
tab, select the “Header and Footer” icon, and remove or replace the current header
Chapter 13 – Word for QuickBooks
Writing letters in QuickBooks, with the help of Word, saves a lot of time and effort because it
allows real estate professionals to mail merge. Within its software, QuickBooks has letter
templates you can use. To take advantage of this tool, follow these instructions:
1. From the Company menu, select “Prepare Letters with Envelopes”
2. Select the type of letter you would like to send
3. The Letters and Envelopes window opens up. Select the appropriate information for the
recipients and click “Next”
4. Review and edit recipients in this window. Names with a check mark will receive a
collection letter, click “Next”
5. Choose the template that is appropriate and click “Next”
6. Enter the name and title you want to show as a signatory on the letter, click “Next”
7. QuickBooks launches Microsoft Word and sends the appropriate information
8. If you have 250 overdue customers, Word creates a letter for each one of them, saving a
lot of time and effort
9. After printing or saving the letters in Word, go back to QuickBooks. The Letters and
Envelopes wizard is still open. Click “Next”
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10. In the Envelope Option’s window, select the envelope size and the appropriate return
address. Place a check mark in the box “Print return address.” Click “OK.” QuickBooks
sends the information to Word
11. Make any last-minute changes in the Microsoft Word window. When you are ready to
print, click “OK”
Chapter 14 - Preparing for the Tax
Season
End-of-Year Closing Procedures
The first step for the end-of-year procedure is to start the Year-End-Guide.
1. Go to the Help menu
2. Select “Year-End Guide”
The following window will open up:
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3. This guide is an excellent check list for all the year-end procedures. Some of the
items on the list will not be applicable to you. Feel free to skip those items that are not
applicable.
Closing your books will allow you to protect your data with a password so it doesn’t get
changed by accident.
4. In order to close your books, you need to go to Edit, then “Preferences”
a. Go to the Accounting tab
b. Select the “Company Tab”
c. At the bottom, select “Set Date/Password”
d. The date you select, normally 12/31/20XX, will close the books and the system
won’t allow any changes prior to such date unless the correct password is
entered
Backing Up Data:
For everyone who is using a desktop edition, it is recommended to back up the data on a
regular basis so work is not lost in the event something happens to the computer.
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1. From the File menu, select “Create Back Up”
2. QuickBooks opens the Create Back Up window. There are two options: an
Online Backup (fees apply) and a Local Backup
3. Select “Local Backup,” then click “Next”
4. Browse to the location where you would like the back up saved and press “OK”
5. Select “Save it now,” then click “Finish”
6. QuickBooks will show you the progress, notify you when it is done saving and
state that the transaction has been successfully completed
Sending Information to the Tax Preparer:
Creating an Accountant’s copy is an efficient way to work with tax preparers. QuickBooks
divides your company file into a before- and after-dividing date. All the data before the
dividing date will be created as an Accountant copy, while the data after the dividing date
will allow you to continue working in your company file.
To create an Accountant’s copy, follow these steps:
1.
2.
3.
4.
From the File Menu, select “Create a Copy” on the company file
A new window opens up. Select “Accountant’s Copy.” Click “Next”
Select “Accountant’s Copy” again
Select a Dividing Date and click “Next”
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5.
Select the location where you would like to save the Accountant’s copy
6.
Click “OK”
7.
Once your Accountant has made changes, you can incorporate them into
your data file
8.
From the File Menu, select “Accountant’s Copy,” then “Import Accountant
Changes”
9.
Select the location were you would like to save the updated file
Chapter 15 – Tax Saving Strategies
This portion of the material presents the participant with a sample of the many deductions
available to them as self-employed professionals. It is not intended as tax advice, but merely a
research of what is available. Please consult your tax professional for guidance and additional
information.
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The Home-Office Deduction:
The main benefit of having a home office is that eliminates the commuting miles; therefore,
increasing the business miles that can be deducted for the year.
According to the IRS: “If you use part of your home for business, you may be able to deduct
expenses for the business use of your home. The home office deduction is available for
homeowners and renters, and applies to all types of homes.”1
“Your home office will qualify as your principal place of business for deducting expenses for
its use if you meet the following requirements:
1. You use it exclusive and regularly for administrative or management activities of
your trade or business
2. You have no other fixed location where you conduct substantial administrative or
management activities of your trade or business
“You can have more than one business location, including your home, for a single trade or
business. What this means is that if you do your administrative work at home and not at
your other office or offices, your home office is your principal office. If your home office is
your principal office, your other office is a secondary office. The IRS says that you can
deduct your vehicle expenses for trips from your administrative office to your secondary
office.”2
Based on an example, “a $200,000 home can generate over $15,000 in cash every 5 years.
This is based on the fact that you can get some new deductions. You can deduct some of
your property taxes and mortgage interest as a business expense. You can also increase
your business mileage because travel from a qualified home office to a business stop is all
business.”3
Business Travel Deductions:
In the real estate industry, we normally travel for conventions and education. Save some
money by learning the business travel rules. “You are on business travel, according to the IRS,
when you are traveling from home, overnight, or for a period of time sufficient to require sleep.
I call this the “strange bed” rule. I encourage people who want to establish “business travel”
status to stay overnight in a strange bed… conducting business. This can be a hotel or a family
member’s home. The key is that you rarely stay there and that you are sleeping at your
business location [and have] a business motive. You should document in your tax organizer
where you stayed and deduct any out of pocket expenses that you incurred.”4
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IRS Home Office Deductions
Bradford and Company, Inc.
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2
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“Two categories of expenses: Your travel expenses fall into one of two categories:
1. Transportation Expenses
2. Business –day – Expenses.”5
Transportation Expenses
When it comes to transportation, there are several points we need to establish: percentage of
business days vs. personal days and destination in or out of the US.
United States Travel 51/49 Rule: When traveling in the United States, if your business
days exceed 50% of your trip days, you may deduct 100% of the transportation cost. If it
doesn’t you deduct 0%
Foreign Travel 76/24 Rule: When traveling abroad, if your trip is less than 7 days you
may deduct 100% of your transportation cost, if your trip is more than 7 days, and your
business days exceed 75%, then you may deduct 100% of your transportation cost, if it
doesn’t the amount is prorated.
Business Days Expenses
For each business day of travel, you may deduct lodging, 50 percent of your meal costs and
incidentals.
Work Days: When traveling, a work day is a day where you work more than half day (4
hours and 1 minute).
Tried to Work Days: When you tried to work, but for circumstances beyond your control
the activities were prevented.
Sandwich Days: Weekends, holidays and other necessary standby days count as
business days when sandwiched by business days during a trip.
Travel Days: Travel days are business days when the in transit activities exceed four
hours.
100% Entertainment Deductions:
According to the IRS, all entertainment is subject to a 50% except the following:
1. Sales Presentations: The key is the difference between entertainment and sales
promotions. When we are doing a sales presentation with the intention to sell our
services, then the cost of the meals is 100% deductible. For example, if we take our
clients out to show properties, stop to grab something to eat and pick up the tab, which
is not an entertainment expense, but a sales presentation and therefore 100%
deductible.
5
Bradford and Company, Inc.
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“In a private Letter Ruling 9414040, a real estate broker provided free meals to
prospects who attended his sales presentations. The attendees entered drawings at
trade shows, conventions and state fair. The broker then used telemarketing to invite
the prospects to the free dinners. The IRS ruled that the dinners were not
entertainment subject to the limit but rather were 100 percent deductible.”
2. Qualifying Sporting Events: You may deduct 100% of the cost of tickets to a sporting
event that benefits a charity, if the event:
a. Is organized for the primary purpose of benefiting a charity
b. Gives the entire net proceeds to the charity
c. Uses volunteers to perform substantially all of the event’s work.
Then, you may deduct the cost of the ticket package, including seating, use of
entertainment areas, contestant positions, meals furnished at or as part of the
event and parking, provided that you held a business meeting during the event.
A perfect example of this deduction is the Booz Allen Classic Golf Tournament in
Washington DC.
3. Party with your Employees: Employee recreation produces 100 percent deduction not
subject to the 50 percent rule on entertainment. To qualify for the 100 percent
deduction, the recreation event or facility must primarily benefit your employees, other
than those who own 10 percent or more of the business or are in a highly compensated
group. It is important to be able to prove you are not discriminating in favor of highly
compensated individuals.
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Health Insurance Deductions for the Self-Employed:
According with the IRS publication, IRS Tax Tips, “If you're self-employed and paying for
medical, dental or long-term care insurance, the IRS wants to remind you about a special tax
deduction for some insurance premiums paid for you, your spouse, and your dependents.
Starting in tax year 2011, this deduction is no longer allowed on Schedule SE (Form 1040), but
you can still take it on Form 1040, line 29. You must be one of the following to qualify:
A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss
From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form
1040), Profit or Loss From Farming.
A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065),
Partner's Share of Income, Deductions, Credits, etc., box 14, code A.
A shareholder owning more than 2 percent of the outstanding stock of an S corporation with
wages from the corporation reported on Form W-2, Wage and Tax Statement.
The insurance plan must be established under your business.
For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name
of the business or in the name of the individual.
For partners, the policy can be either in the name of the partnership or in the name of the
partner. You can either pay the premiums yourself or your partnership can pay them and
report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be
included in your gross income. However, if the policy is in your name and you pay the
premiums yourself, the partnership must reimburse you and report the premium amounts on
Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income.
Otherwise, the insurance plan will not be considered to be established under your business.
For more-than-2-percent shareholders, the policy can be either in the name of the S
corporation or in the name of the shareholder. You can either pay the premiums yourself or
your S corporation can pay them and report the premium amounts on Form W-2 as wages to be
included in your gross income. However, if the policy is in your name and you pay the
premiums yourself, the S corporation must reimburse you and report the premium amounts on
Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not
be considered to be established under your business.”6
6
IRS Tax Tips March 15, 2012
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Out-of-town Rental Property Deductions:
According to Sandy Botkin, “Necessary travel to take care of your rental property is deductible.
The key is that it must be necessary, which is determined by the facts and circumstances. If you
collect the rents and actively participate in the day-to-day operations of the rental property,
you will obviously have some trips to make sure that the property is in good condition. You will
also have to check on rents in the areas, make repairs, and speak with certain vendors. Even if
you engage a management company to look after the property, you must check on their
work.”7
Bibliography:
Keller, Gary. (2004). The Millionaire Real Estate Agent. (city published: McGraw Hill)
Bradford and Company, Inc. Tax Strategies for the self employed. San Rafael: Bradford and
Company, Inc., 2011.
Florida Real Estate Commission. Florida Administrative Code. Florida: Department of Business
and Professional Regulation, 2014.
Hotline, Legal. "Questions and Answers." Florida Realtors Magazine March 2014: 10.
IRS. IRS.gov. 03 02 2014. IRS Publication 587 Busines Use of your Home. 26 02 2014.
Ramsey, Dave. Financial Peace University. Brentwood, TX: Lampo Licensing, LLC, 2010.
Sandy Botkin, CPA, Esq. Lower your Taxes - Big Time! New York: McGraw Hill, 2013.
Service, Internal Revenue. "IRS Tax Tips ." HC-TT- 2014-01 (2014).
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