Imagine that you're having dinner with a friend. They know you're a property investor and ask, "So, how's the property doing?"
You freeze because you have no idea. You've been avoiding bookkeeping because it seems too overwhelming. Now you're left without a clear picture of whether or not your investment is paying off.
Read on to learn how to manage rental property accounting records.
Create Separate Accounts
Create separate accounts for your personal and business finances. Put all rental income into and pay for all rental expenses using money from the business account.
This makes it easier to keep track of all your business transactions. It also prevents the IRS from looking into your personal finances if you ever get audited.
Small investors who own three to nine properties account for approximately 47% of all investment purchases. You don't need a massive portfolio to benefit from creating separate accounts for each property.
It makes it easier to track where the money's going. This helps with other accounting tasks such as reconciling transactions, creating profit and loss statements, and filing taxes.
Track Income and Expenses
Rental income is not your only source of money from a property. It may also come from:
- Late fees
- Application fees
- Pet deposits
- Utility reimbursements
- Security deposits
Track all your income and put it against your expenses. Do this weekly, monthly, or every four months.
The more often you do it, the simpler it will be. It increases the accuracy of your financial reports, giving you insight into how you can make your property more profitable. It also helps at tax time by allowing you to avoid audits and maximize your deductions.
Use The Right Tax Forms
Tax season can hit business owners like a natural disaster. If you don't have the right defenses, it can take everything you've worked so hard to create and blow it away.
Put all of your expenses and income onto Form 1040 Schedule E. It includes several expense categories, which means tracking how much you're spending isn't enough. You need to develop a system or use the right software to track what you're spending your money on.
There are also other tax forms that landlords need to know about. Every employee that works for you needs to fill out a W-9 form. Any non-employee earning over $600 from your real estate business in a year must fill out a 1099 form.
Get Help
There are many reasons you may need to use a property manager. They help you find and retain tenants, collect higher rent, and maintain the property.
They're also experts in record keeping. They'll track your expenses and income, provide reports, help with taxes, and help you maximize your property's profitability.
Where to Go When Rental Property Accounting Records Become Overwhelming
No landlord can have a successful property without careful rental property accounting. It includes creating separate accounts for each property, tracking income and expenses, and filing taxes.
PMI Arrico Realty & Property Management Lakeland is a full-service property management company. We work to maximize the rental experience for tenants and investment profitability for owners. Get started with a free rental analysis today.
