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Setting Up Your Personal Real Estate Corporation: A Tax Guide

2 Nov 2023 · 2 min

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2:25

Bob Gauvreau explains tax and bookkeeping implications of setting up a personal real estate corporation (PREC). He covers choosing the corporation’s first fiscal year-end (you can choose up to ~12 months/367 days from incorporation), the need for separate corporate bookkeeping and bank/credit accounts, and recommends hiring professional bookkeepers/accountants to avoid late-filing penalties.

Questions this video answers

Up to 367 days (approximately a 12-month period).

Set the first year-end to September 30 of the next year (i.e., one year later).

June 15th.

Chapters

So you've just set up a personal real estate corporation. And what does that mean for taxes? Well, now that you've got your personal real estate corporation, first off, congratulations. You made the first step towards achieving a lower tax rate than you had in the previous year. So likely you set this up because you've been filing personal taxes maybe even late because it's the spring market and it's due June 15th and you're busy and it's chaotic, but now you've got this corporation. So in the very first year of your personal real estate corporation, you get to choose a year end date. It can be essentially up to 367 days from the date of incorporation. If I incorporate October 1st, I can set up my year end date, my first year to file taxes to be September 30th of the next year. I could also choose December 31st of this year, but I can't exceed a 12 month period in essence. So we get to choose the year end date of when we get to file. Listen, real estate agents, I don't know about you, but I know you guys are super busy in the summer. Why don't we file in the fall or maybe even in the winter so that you guys have a little bit more time to deal with your tax planning and your overall business. So first year of a prec, we're going to be able to choose a year end date. You also want to make sure though that you've now got up to date bookkeeping. Because you're a corporation, it has to have all of its own separate bookkeeping and financial record keeping. It's a little bit more complicated than just filing numbers on a personal tax return saying, here's my commission, here's my expenses. We actually have to reconcile assets and liabilities, so bookkeeping becomes very important. Now there's likely a cost to have professional bookkeeping done on your behalf, but it's going to be a very worthwhile venture for you because really you don't want to be doing that record keeping anyway. Let's set up a business bank account inside the corporation. Let's set up a business credit card or just use a designated credit card for the corporation, give those to a bookkeeper and they can make sure all the transactions on those two accounts get recorded reflected accurately. So you're maximizing your deductions and you're not stressed out about having to come up with all these financial numbers right at the deadline. We do not want to file late. The penalties for late filing are way too expensive. You're way better to just pay that money to have a bookkeeper and an accountant deal with everything on your behalf and get it done professionally.