Northland Property Investors' Association
“What can I do to reduce my accounting fees at the end of the year?”. I am often asked this question by my property investor colleagues and as an accountant who does year end accounting for many property investors I am well placed to answer it.
There is a lot that you can do to reduce your accounting costs, especially in terms of the preparation you do prior to handing over your records to your accountant.
But, I also want you to consider what other value you might get from your accountant, especially with the recent announcement that losses will be ring fenced from the 2019/2020 year. It might be false economy if you just focus on the cost savings at year end. How will you know what else you could be missing out on? Was there something that should have been tax deductible? Could a non-tax-deductible loan be restructured to become tax deductible? Could your accountant identify issues with a poorly performing property that you need to address sooner rather than later?
To return to our original question, “What can I do to reduce my accounting fees at the end of the year?”. The better something is presented to your accountant the less time they will need to spend getting the numbers right. So, anything you can do to summarise the information the better. Hopefully, the days of the shoebox are behind us (where all the receipts, you hope, were put in the box with other random pieces of paper and given to your accountant to sort out at the end of the year). The information you need to provide depends on what entity you use to own your rental properties. If owned in your own name you only need to complete a profit and loss (rent received less all the expenses listed out). If you own your rental property in a company, you need to complete accounts which also include a balance sheet (all assets and liabilities listed). A trust will have similar requirements.
Xero (or a similar) accounting package is a fantastic start, if it is completed accurately. For example, the bank accounts (including loans) in the accounting package should equal the bank account statements at the bank at the end of the year. The rent received should match the rent as per your property managers annual statements. Expenses should be listed into the correct categories. Repairs and maintenance should be distinguished from improvements. If you are an individual, you can still use Xero or you can summarise your rent and expenses in excel.
A good property accountant will use this as a starting point. We will be looking at things such as whether or not you have claimed everything that you can? Are all the expenses actually tax deductible? Often the big-ticket item is wrongly claiming repairs and maintenance that should be treated as improvements (tax deductible vs non tax deductible). Did you get a chattels valuation that could increase your tax deductibility? Is your interest all tax deductible or can we restructure your loans to make them tax deductible? What are your long-term goals with your rental properties? Are all properties performing well? These are the more interesting things for us to look at – compared to the shoebox approach. Don’t get me wrong there are still accountants out there that like doing this and then once they have the numbers that is where they stop. Just remember, you get what you pay for and if you know that and are happy with that, then that’s fine.
The goal of most accountants is to add value to the year-end process for our clients. Yes, it’s great to file a tax return and get a refund for a client in a cost-efficient manner. But, what you miss out on may be far more than you save by reducing your accounting fees.
Next time – ring fencing losses - what will this mean to you?comments powered by Disqus