Last year was a wake up call for me – and thankfully the real estate accounting basics I learned saved my butt!
I had 30 days to complete FIVE years of unfiled taxes.
Actually, I think my super-awesome accountant got that extended to 45 days…but it was still a REALLY stressful time.
I’m sure you can imagine it.
I basically shut down my entire operations in BOTH companies to work around the clock getting all my stuff organized and input.
Literally.
Between my bookkeeper and accountant, it was really a lot of work.
Thank God I had that help.
What really put my ass in gear was knowing that the CRA could potentially freeze all of my accounts (personal and business) until I submitted my returns.
Not good.
Are you seeing where this stress level is ramping up?
Good news. That didn’t happen.
But what DID happen was an audit.
So understanding real estate accounting basics was critical.
Now there’s three types of audits:
- Information requests
- Desk audits
- Full audits
I was lucky enough to get information audits. I actually got a few of them (I’m guessing it was because of the volume of returns I submitted)
It’s pretty straightforward because the CRA just wants to verify information after they’ve compared it with other information sources.
This is WHY it’s really important to have your stuff properly filed AND retrievable within 30 seconds.
Yes.
That’s not a typo. THIRTY SECONDS. ( or at least under a minute)
The “time” is really not what I want to point out.
It’s the ability to pull information at a moments notice that I want to stress here because…
YOU WILL BE AUDITED TOO.
Not because you’re filing late (although that raises more flags on your account)…
…but because of the NATURE of your business.
Are you ready for an audit?
If it’s simply sending in proof of something, I’m sure you could pull that off.
But what happens if the CRA asks you for a desk audit?
This is when you have to gather even more information and send it to them.
If your files or reporting system is all over the place, you’re going to have a challenge.
Because a lot of the real estate investors I’ve talked to have a basic excel spreadsheet and a shoebox of receipts.
That’s not optimal.
CLEAN records are optimal!
Knowing that, I spent the time inputting my stuff DURING this hectic time into a proper system.
I used Quickbooks Pro for my bookkeeping.
Which is the standard in bookkeeping – for ANY business.
The trick was trying to adapt a bookkeeping program that was not intended for real estate investors.
My savior was Accountant-in-a-Box.
Accountant-in-a-Box helped me organize my files and helped me set up Quickbooks properly to work the first time.
I’m not accountant.
I failed grade 11 and grade 12 math.
So that should tell you how “good” I am with numbers.
But I was able to balance my bank accounts, create and pull the proper reports for joint venture partners and of course get all the important information for my own tax returns to the accountant in a timely manor.
Not only that, I SAVED MONEY on my bookkeeper because I was able to set up automatic entries that she was doing manually every month.
Now, each Friday I open Quickbooks and it ‘reminds’ me of the mortgage payments, the taxes and of course my rental income – I click the “go ahead” button and BAMMO – they’re input.
WITH the proper designations, classes and so on that Accountant-in-a-Box uses for the real estate reports we need.
BRILLIANT!
Click here for a FREE Quickbooks CheatSheet
When I received the audit requests from the CRA, I didn’t panic at all because I knew where I could pull the “proof”.
Both from my receipts (which were now filed properly), and from the books side using Quickbooks and Accountant-in-a-Box.
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I loved Accountant-in-a-Box so much that I partnered with Dube & Cuttini and convinced them to let me get it in front of more Real Estate investors like you who need this kind of bookkeeping automation. You can read more about it here.
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Look, the last thing I wish on you is an audit.
But the chances are REALLY high that we are going to get some form of an audit based on the nature of our business.
Why not make sure your information is input the right way so you are not only taking full advantage of tax savings and deductions, but to also be prepared when you’re called on from the CRA.