Are you a commercial real estate dealer in NYC and want to thrive in the market? The only mantra to succeed in this industry "abreast of your accounting operations"! Many real estate dealers overlook finances and when any tax reform is introduced by the government, handling books becomes quite painful for them.
As we are talking about NYC commercial real estate partners, according to economists, the new tax reform is on their way, and it is predicted that it would be fortunate for commercial real estate companies.
All the dealers are in a cheerful mood, realizing that their tax season would be seamless. But New York City's tax codes are very complex, and if you don't know the rules, you may face unpleasant scenarios. And as the adage goes "Numbers don't lie" because whenever you talk about your agency's success, you need appropriate numbers that describe sales and properties sold out.
Keeping in mind, all the facets of accounting, commercial NYC real estate dealer have to avoid these six accounting mistakes that may create havoc in your business:
1. Not maintaining a back-up on a regular basis-
This could be a nightmare for real estate owners. If you have already experienced this havoc in your business, then you might have understood why I labeled this as "nightmare." In case, if your technology failed or you closed your document without saving, or the computer crashed mid-night, or a virus cleans your drive- all these incidents can cost you partial or overall loss of many weeks or even months' worth of struggles. Is it not a nightmare?
According to numerous reports, 44% of data loss is caused due to deletion of certain files by mistake, or software corruption or system crash.
However, maintaining a back-up is not cumbersome so don't try to overlook this aspect and move further as the consequences may change your business model upside down in no time.
2. Improper management of financial records-
You know financial lenders kills a lot of deals every year. Why? Because they often use tax returns to verify the property's cash flow. Thus, you have to understand this fact and react accordingly. Make sure that the tax return for the year before the sale, is taken into consideration whenever you are seeking loans.
Try to control your expenses to reduce or eliminate your taxable income. If possible, sell properties to buyers as per your net operating income. Don't forget to classify your expenses appropriately by deprecating your tenant improvements and capital expenses.
3. Classify appropriately-
Accounting has its own nuance and making mistakes is something common in this process. But one common error occurs from not knowing what contributes to capital expenditure as opposed to repair and maintenance process. And then what happens? Many commercial real estate pros end up overestimating or underestimating their tax liability.
More so, major renovations, modifications or breakdowns also trigger the New York State Department of Taxation and Finance to audit your bookkeeping process. Though classifying capital expenditure is intricate, they must be included as the part of the property, add value to it and characterize an eternal fixing.
4. Closing cost contemplation-
In general, closing costs mean the expenses beyond the buying price approved to in the contract, which has to be paid by the seller or the buyer of the assets. According to experts, clients usually fail to estimate the closing costs or closing adjustments, and when they come across these funds, they get in turmoil.
Property taxes, loan origination fees, title insurance or appraisal fees are some of the funds that you may encounter when escrow process begins. You may not realize how much these funds will cost you initially as it may lead you to debts forever.
So whenever you are selling the property, you should give a brief of overhead cost to your clients and calculate the price that you have to pay so that NYC state department doesn't knock your door for audits.
5. Prepare a well-structured contract as your building-
Don't forget that the real estate industry is highly regulated and taxed sector in the business environment. Developing a viable accounting and tax strategy can be of great help to attain success in your profession as accounting blunders may appear trivial, but it can cost you millions.
CRE pros usually forget about drafting a contract that mirrors their work because fake promises with clients can take you nowhere and only bring reputation damage to your real estate business!
6. Allowing inexperienced staff to manage the books-
Considering the budget constraints, you may call upon an inexperienced team to handle your books and do tax return preparation for you. But in the trajectory of saving costing, you will lose out your business. An untrained employee, who doesn't know your domain and accounting principle applicable to your real estate business, can create havoc in your business.
Thus, it is advisable to hire the right staff that employs qualified people that hold good years of experience working in your business domain.
Bottom line
Approximately 45% of all tax dollars are collected in NYC from property taxes as per the report of the 2017 financial year. To sidestep these mistakes, evaluate your accounting procedure today and analyze what efforts you need to put in or your staff members have to work on- to thrive in the global market!
Guest Author
Tracy Watson is a Business Development Manager at Accounting To Taxes– a well-known company offering complete finance and accounting services. She has always been a great contributor to the accounting industry and also responsible for branding and lead generation. And being a passionate writer as well she helps businesses with her informative articles.