Real estate is a thriving business and one ought to ensure that they are up to date and on track with all things required for business bookkeeping in Toronto. Bookkeeping for small businesses in Toronto is relatively easy but only in the earlier stages. Once your business begins to thrive and grow, you would see that it becomes overwhelming to manage all of this.
Here are a few tips for you to manage the bookkeeping of your real estate business.
Keep your personal and business expenses separate
This is important: Keep your personal expenses and real estate expenses completely separate. We are talking about separate bank accounts, credit cards, and debit cards. If you’ve never owned a business, you may ask yourself, “Why is this such a big deal?” There are two main reasons:
- Tax liabilities
- Property protection
When bookkeeping for small businesses in Toronto, using one account for business and personal transactions are known as fund commingling. The blurry lines between business and personal finances are red flags for the CRA, which could trigger an audit. An LLC is designed to protect your personal assets (limit your liability) if your assets are sued. There is no liability protection for mixed accounts. If you are sued and your account is frozen, your personal funds will be considered part of the business.
A separate record should prevent creditors from searching your personal assets, also known as piercing the corporate veil. It’s best to talk to your attorney about how to maximize the protection of your LLC. A separate personal and business account provides protection. It also makes it easier to claim all possible deductions, which will reduce your tax burden, saving you money.
Take external help to take care of bookkeeping services for small businesses in Toronto. Talk to us. We can help you with accounting services for small businesses in Toronto or business bookkeeping in Toronto.
Keep copies of all receipts
It’s easier than it sounds because you don’t need to keep hard copies. We recommend photos or scans of receipts as they are much easier to work with. Most accounting software can scan receipts so they can be searched. The software can also link receipts to your bank and credit card transactions, helping you stay on top of things and ready to defend your spending. Note the ownership of the receipt and the purpose of the expenditure. This will make categorization much easier.
This is what you’d call Bookkeeping for small businesses in Toronto done correctly.
The CRA requires you to keep all receipts over a certain amount as documentation of your expenses. While it’s best to scan all of your receipts, pay special attention to food and travel, as these are typically the most scrutinized by the CRA in inspections and audits.
Reconcile bills monthly
Account reconciliation is the process of double-checking that the recorded transactions match the actual transactions. When everything lines up, the accounts are balanced. If you use technology, this should be a relatively quick process and can happen automatically.
Not so long ago, when every transaction had to be manually entered into a paper ledger, the chances of mistakes were much higher. However, reconciliation remains a basic accounting practice because ongoing accuracy is so important.
Most of the accounting software we recommend can reconcile your accounts in real-time by connecting to your bank account. While a direct connection should eliminate most data entry errors, double-checking is still recommended.
Rebalancing the books monthly will help you spot issues closer to the time the transaction occurred, so the circumstances should still be fresh. This makes it much easier to fix any problems that arise. Try to reconcile your accounts at least monthly. An organized approach to your accounting activities will help you understand how each of your properties is performing.
Ask the experts when it comes to accounting services for small businesses in Toronto or help with business bookkeeping in Toronto.
Use the latest technologies
The latest tools make managing your finances and real estate investments easier than ever. They can automate repetitive tasks like data entry, saving you time and improving accuracy. There are several types of technology that help you manage different aspects of your real estate accounting.
- Business accounting software
- Accounting software for real estate rental
- Property management software
The most obvious tool to help you is accounting software. It will help you stay organized and keep receipts and supporting documents. The main features to look for are:
- It connects to your bank account and automatically imports transactions
- Automatic categorization of expenses (to be verified)
- Receipt management
- Late payment notice
Categorize expenses
Okay, so you have a business bank account and keep all your personal finances separate. Great! Keep digital copies of all your receipts and stay organized. Good work!
Categorizing your expenses should be fairly easy, especially if you keep all your receipts. If you only have a few units, you can manage your accounting with a simple spreadsheet. However, there is plenty of great software that can help you manage your finances (and assets). The point of documenting itemized income and expenses for your property is so that you can determine your taxable income. The lower your taxable income, the less you pay in taxes.
Rent (plus any other income) is your income. Subtract the relevant expenses from the income and the result is your taxable income. If you think that bookkeeping is becoming overwhelming for you, you can take external help to take care of bookkeeping services for small businesses in Toronto.
Find bookkeeping services for small businesses in Toronto with real estate experience
Working with an experienced tax professional will ensure that your return is accurate and that you claim every allowable deduction. As your real estate business grows, an accountant who understands your business can offer advice on future investments. Most importantly, they can help you structure your investments in a tax-efficient way. When trying to recruit a competent accountant, be sure to first check their qualifications and ask them how long they have been practicing. Find out what their real estate experience is and ask if you can speak to any references.
Bottom Line
Taxes are one area where it is not advisable to go towards alone. An experienced property tax professional can offer advice and strategies that can save you thousands of dollars and help streamline your accounting workflow.
Need accounting services for small businesses in Toronto or help with business bookkeeping in Toronto? Talk to us.