RentRedi CEO Ryan Barone writes that there are ways to streamline the tax filing process and stay organized year-round so it goes smoothly when tax time comes.
Mark your calendar for Inman’s upcoming events and enjoy the ultimate real estate experience! Travel into the future at Connect Miami, immerse yourself in luxury at Luxury Connect, and connect with industry leaders at Inman Connect Las Vegas.Discover more and join the best in the industry inman.com/events.
Rental property accounting can be the most difficult part of being a landlord, especially when it comes to maintaining the property and keeping your finances in order.
However, there are ways to streamline the process and stay organized year-round so that when tax time rolls around, things go smoothly.Here are some accounting tips that can help landlord Track your finances and prepare for tax day.
It’s not personal.this is business
This may seem like a no-brainer, but you’d be surprised how many small business owners use their bank accounts for business purposes. Opening a separate bank account for your rental property business is crucial because it makes it easier to track income and expenses related to your rental property. Separate accounts also encourage organization and simplify tax preparation.
If you have made your Keeping records Slides, now it’s time to catch up. Without accurate financial reporting, you can’t make informed decisions about your property or business. Keeping accurate records of all income and expenses related to your rental property is also key to simplifying tax preparation. This includes keeping records of rent payments, property maintenance costs, repairs, insurance premiums, property taxes and mortgage payments—ideally all in one place.
When tax season arrives, it’s easier to quickly gather all relevant financial records for the tax year and organize your income and expenses into categories. You can then determine which expenses are deductible based on tax regulations. Common deductible expenses for landlords may include mortgage interest, property taxes, insurance premiums, maintenance and repairs, utilities, depreciation and professional fees.
Track, monitor, review, repeat
In the spirit of staying organized year-round and avoiding the madness of tax season, there are many accounting data points that landlords should track, monitor, and review on a regular basis. It’s a good idea to keep track of all the expenses associated with your rental property, including utilities, property management fees, and regular maintenance and repairs.
Ensure all rental income is correctly recorded and accounted for by regularly monitoring and verifying the accuracy of rental income statements. Save receipts and invoices for every expense, and take time each month to review your financial reports – including profit, loss and cash flow statements. This will help you identify any differences or areas where you can improve your financial management practices.
Take full advantage of technology
Using spreadsheets to track your payments and expenses is one of the oldest record-keeping methods (besides using pen and paper). While this is a time-tested method of recording material, affordable technology can automate the process, saving time and making your business more efficient.
The app or software should only ask you to enter tenant and rent payment information once to set up tracking of the tenant for the entire lease. This ensures that you’re less likely to find data errors due to human error and eliminates the time spent manually typing information. Input data can be easily exported to .csv files, compatible with Microsoft Excel, Google Sheets and Apple Numbers.
Look for seamless, automated accounting features such as simple setup, property-based reporting, revenue and expense tracking, lease transaction templates, fixed asset tracking, file storage, mileage logs, and tax reporting. A platform that helps you track all your bookkeeping needs easily and quickly through one app will provide maximum convenience.
Be familiar with tax laws and deadlines
Even if you hire an accountant to help you with your taxes, as a business owner you should be aware of federal, state and local tax regulations and all related deadlines. Be familiar with landlord-related tax forms and deadlines, such as Schedule E (Supplementary Income and Loss) and Form 1040. Make note of tax filing deadlines and any extensions.
Understanding tax laws and regulations – and keeping up with changes in tax laws each year – will help you understand how to handle accounting and drive better financial decisions throughout the year. Please pay special attention to the laws and regulations that apply to landlords and small business owners to take advantage of all available deductions and credits.
Maximize deductions and credits
It’s important to determine which expenses count as deductible expenses for the landlord. These may include mortgage interest, property taxes, insurance premiums, maintenance and repair costs, utilities, depreciation and professional fees. If applicable, calculate and record depreciation on your rental property, which allows you to deduct the cost of the property over its useful life, thereby reducing your taxable income.
You should also keep track of all home office expenses, because if you dedicate a portion of your home to rental property management activities, you may be eligible to deduct a percentage of your home expenses (such as utilities, insurance, and maintenance). Be sure to keep detailed records to support your claims in the event of an audit.
Note the distinction between deductible repairs and capital improvements. While scheduled maintenance is generally deductible in the year it is incurred, capital improvements (such as installing a pool or making energy-efficient upgrades) may need to be depreciated over time.
Consult a tax professional
Finally, if you are unsure about any aspect of your rental property accounting and tax obligations or need help filing your taxes, seek the advice of a qualified accounting professional who specializes in real estate taxation. Even if you prefer to handle your own accounting and prepare your own taxes, it’s always a good idea to consult with a tax professional to properly classify expenses and deductions and to ensure that you are complying with all applicable laws and regulations. They can also provide valuable guidance based on your specific situation.
Ryan Barone is co-founder and CEO of reddy rentalsan award-winning rental management software that changes the way landlords and tenants manage their rental experience.
