5 Tips for Using Dotloop Accounting Integrations to Close Out 2020

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November 13, 2020 | comments

How Brokers Beat the Year-End Tax Scramble With Integrations

2020 certainly has been an interesting year. For most real estate agents, the year ended on a good note but, for agents and brokers who don’t have their end-of-year financials in order, these last months of the year may prove to be anything but joyous.

Brokers and team leads can avoid end-of-year financial frustrations by using dotloop-integrated software that streamlines 1099s, maximizes deductions, minimizes errors and provides accurate reporting for smarter recruiting and planning.

1. Maximize Tax Deductions

It’s all too easy for agents to overlook expenses that might serve as valuable deductions throughout the year. With the onset of the COVID-19 pandemic earlier this year, 2020 moved the home office front and center as the new workplace of the foreseeable future for many. Rather than leave those valuable deductions on the table, it’s important that real estate professionals take a close look at these potential deductions and plan accordingly.

While these types of expenses aren’t typically tracked in dotloop, some can still be linked to the transaction in dotloop by entering the loop address under “customer” in QuickBooks, says Michael Davidovich of San Diego-based APINation. “This lets you show your profit and loss per deal. I’ve seen brokers view their P&L by agent and by deal using this feature.”

Mark Kappelman, CFA, CPA and co-founder of RealEstateAccounting.co, a full-service real estate accounting firm, advises identifying first-of-the-year expenses that may provide deductions for the current year. For example, paying MLS, CRM or LinkedIn membership fees that are due in January 2021 a month earlier in December can offer a tax deduction for the 2020 return that would otherwise be delayed by a year.

Taking care of any needed car repairs in the fourth quarter, rather than waiting until the following first quarter, is another good way to maximize deductions for the current year, says Kappelman.

With accelerated and/or bonus depreciation laws now allowing individuals to write off a larger amount in year one of a big purchase like a new car, agents can oftentimes deduct 100% of the purchase price in the year of purchase, rather than wait for it to depreciate over seven years, says Kappelman. This puts actual dollars back into the agent’s pocket by offsetting current year commission income with a non-cash depreciation expense.

“If you need a laptop, buy it now and take the tax deduction. If you wait until January, you won’t get your tax savings for 16 months (April 2022) versus five months (April 2021) if you buy it in December,” he notes.

To better track all expenses, Kappelman highly recommends getting a separate business credit card and bank account to avoid commingling of personal and business expenses. Not only does this offer the advantage of credit card point accrual, but it also makes end-of-the-year accounting much easier and thorough.

Some accounting apps that integrate with dotloop can help. Reeazily, for instance, works with clients to help them automate the bookings of credit card expenses, notes reeazily Co-founder and CSO Casey Reagan. “For newer brokerages, we train them how to create rules in Quickbooks Online that recognize recurring transactions in their bank’s transaction download so they can automate with confidence. For larger and multi-office brokerages, we help them establish templates in broker.EZ’s A/P module that will allocate expenses across locations or even bill agents back for passthrough expenses. Having all the expenses in your P&L will make your CPA smile and save you money.”

Sasha Hryciuk, CEO, and Tracy Simmons, CRO of the complete commission management and accounting solutions Loft47, also reminds agents and brokers to stay on top of expenses year-round not only to avoid panic around tax time but also to help glean ongoing valuable insights from the data.

“Independent contractors who leave accounting until the year’s end find themselves missing out on valuable deductions,” says Simmons. “Use bank feeds and other automation tools to automatically capture and track your business expenses. Set them up once and let automation do the work for you. You and your accountant will love it.”

2. Streamline 1099s

Whether you report commissions quarterly or annually, several integrations with dotloop can help simplify the process.

As part of the initial onboarding checklist, reeazily’s Reagan advises brokers and team leads to set up loops in dotloop for new agents’ HR documents, including Independent Contractor Agreement (ICA) and W9s.

“For one-off co-ops, it’s good practice to attach the W9 to a loop. The mistake is that brokers forget about the co-ops’ W9s at the time of transaction and then they’re scrambling to get all the information together at the end of the year,” says Reagan.

Dotloop integrates with a variety of back-end and accounting apps to simplify 1099 preparation. For example, Loft47 syncs all people, financial details and documentation from the loop into the accounting platform, where commission deductions are auto-applied to the deal. As 1099s can include a variety of income sources and fees, Loft47’s platform allows brokerages to customize the figures on the 1099 by the configuration of commissions, additional income and mentor fees as annual income. They can then customize which, if any, deductions reduce their total income for the year.

Two-way syncing software APINation and back-end real estate apps BrokerSumo, Constellation1 and reeazily all integrate with QuickBooks Online or QuickBooks to automatically populate commission data.

Because the information sources from dotloop, these integrations will automatically pull in the agent’s name, address, phone and email, making it easy for brokers to match agent records in QuickBooks.

For those brokers who may add different types of payments other than commissions, such as property management fees or broker price opinions (BPOs), reeazily’s broker.EZ can run a preview report that scans the entire office’s fees collected or dispersed over the year.

“It’s a good way to look at things that have changed and need to be adjusted in box 7 on the 1099,” says Reagan.

All the information contained within a disbursement, including gross deductions, tax deductions, specific commissions, tech fees, agent expenses, Errors & Omissions (E&O) fees and deposits sync directly into QuickBooks, producing a clean profit & Loss (P&L) statement and 1099s, says BrokerSumo Director Jeremy Shoenig.

Agents can obtain their own 1099s and view their commissions and expenses in real time using reeazily’s agent.EZ, a broker option that allows agents to log in and access their specific 1099; BrokerSumo’s agent portal, which breaks out desk fees, transaction fees and other expenses from commissions; and Loft47, which lets agents view their related loops, transaction details, deal documentation, payouts, fee history and 1099s. Agents can also subscribe to their own data feed on Loft47 to automate their own accounting. The platform passes data from the loop, through the brokerage and right into their own accounting system, saving countless hours.

Such portals offer broker-enabled agents the ability to sign off on their disbursals or pending commissions as verification of what they’re being paid before the 1099 is cut.

3. Track Deposits

Syncing deposits, such as earnest money, is not only critical to keeping your financials straight; it’s also a compliance issue. Many states audit the flow of this money with three-way reconciliations to ensure the book balance, adjusted bank balance and trial balance are in agreement. To do that, brokers will need to track the amounts of the deposits, when they were deposited and where they were dispersed.

The APINation integration with QuickBooks can automate this data flow for brokers and teams year-round. When a deposit is entered in the “earnest money” field within dotloop, a deposit is created for that amount in QuickBooks, dated with the listed “contract agreement date” and the loop name as the description memo of the deposit.

Additionally, any money that brokers receive for charitable donations campaigns need to be cleared from liability accounts by the end of the year. As Reagan cautions, “CPAs want to make sure that those funds are paid out to the charity in that calendar year.”

4. Plan KPIs for Coming Year

Many brokers have set KPIs for the coming year with the goal of increasing business, retaining more agents or generating more referrals in the coming year. But what about taking the time to look back on the last 12 months to inform those goals?

One of the biggest mistakes real estate agents and brokers make at the end of the year is not taking a deeper dive into the wealth of knowledge the past year’s data can provide. Agents can mine valuable information such as what lead sources returned the greatest investment, and brokers can identify which of their agents were most productive.

Tag and Track Lead Sources

With dotloop Business+ and dotloop for Teams you can maximize budget allocation by easily tagging transactions with the lead source and create reports that tell you which channels are generating quality leads.

See All Features

There’s a great deal of reflective and forward-thinking transactional information contained within dotloop. Average sales price, average commission, sources of business and number of units closed from each source are just a few of the metrics that can help inform year-end reporting and guide KPIs for the coming year.

Creating a one-page deal cover sheet in dotloop may help to increase agent participation in getting the data brokers and team leads need to gain better business intelligence. Reeazily leverages key data from dotloop contacts and lead sources to provide reports that provide valuable insights on drivers. Likewise, the platform’s business intelligence solution provides real-time dashboards for offices and agents highlighting their performances year over year.

Because so many systems track agents’ data, it’s a great idea to use an analytics platform like Google Data Studio that can blend data from multiple sources and connect commission information to listing activity, deal flow, accounting and spending data for deep and valuable insights into both the brokerage and agent operation, says Hryciuk. Loft47 is working with APINation on a sophisticated integration with Google Data Studio that allows their clients to monitor performance in real time. Here are a few samples of what agents can build and share with these custom templates for brokerages and agents.

5. Close Out Pending Business

While closing out pending business at year end is important, month-to-month maintenance
makes for a healthier business all year long. Cleaning up or closing out pending business periodically or even monthly is a much better practice than taking it on as a big project in December or January, says Simmons.

Loft47 provides a dashboard that keeps agents and brokers aware of any potential opportunities or issues such as overdue items or transactions that have lingering deposits or payouts required.

The transaction status tags within dotloop can also help brokers and agents identify pending business to help better identify actions needed to maximize tax benefits. “You may try and close out the pending business in the current year or push it out to next year to avoid paying taxes this year,” says Shoenig.

Likewise, it’s important to check for loops that are not finalized and make the push to get them closed out. “It’s not a bad practice to hold payments to agents until they close the loop,” says Reagan. “1099s are based on when a payment is made, not when a deal closes, so it makes validating your numbers easier if that happens in the same year,” he says. “Look for reports in your back office that will help you find unfinished deals or open payments.”

Lastly, year end isn’t just about cleaning up your books. It’s time to audit your business and look ahead at what could be. Look at office processes and systems. What’s working and what isn’t?

“Now is an important time to be considering the technology that’s backing your business,” says Rachel Bottineau, VP of Back Office Operations at Constellation1. “As you approach year-end, think about your current back-office solution. Ask yourself, ‘Is it doing everything you need to ensure you’re maximizing your returns?’”

Integrations can simplify all of these tasks by syncing the transaction details with accounting apps. Most offer fast setups in under two minutes. Learn more about dotloop’s integration partners and activation links.

Remember, a few minutes spent getting the books in order today will save days of data entry headache tomorrow.