Did you know that the IRS treats rental income as regular income when it comes to taxes? When you file taxes, you'll need to add rental income to other income sources, if you have any.
One of the many tax benefits of owning rental properties is the ability to deduct qualified expenses. To do this, you need to keep track of income and expenses throughout the year.
Avoiding common rental property accounting mistakes is key to financial success. Keep reading to learn what to avoid with this expert landlord advice.
Failing to Digitize Accounting
Because technology is so prominent in today's world, there's no reason to manually handle rental property accounting. If you want to make things easier on yourself, digitize your accounting process.
When you spend money on your rental property investment, be sure to keep track of the expenses. At the end of the year, you'll be able to keep track of your receipts with ease.
Everything from security deposits to tenant rent to maintenance expenses needs to be tracked.
If you don't digitize the receipts, you risk losing track of them. Even if you are able to keep track of all paper receipts, looking through them will be a nightmare when you need to file real estate tax returns.
Using Your Personal Bank Account
One rental property accounting mistake you don't want to make is using your personal bank account for rental finances. It's difficult to complete property accounting when your personal finances are in the same account.
When you buy a rental property, you should immediately open a separate bank account for business finances. Get a debit or credit card as well to use for purchases related to the rental property.
Business credit cards can boost business credit rating, improve business cash flow, and help control spending.
Waiting to Add Up Expenses
Keeping track of rental property income and expenses is easier when you add up everything at the end of each month. Don't wait until the end of the year to add up all of your rental property expenses.
Adding up all your expenses, especially monthly, can be a time-consuming task. Hiring a rental property management company means working with professionals who can handle your accounting.
A property management company will track rental income and provide you with accounting reports. Not only is this beneficial for tax purposes, but you will be able to see how your investment is coming along.
If you aren't making enough rental income to see a return on investment, a professional property manager can help with additional operational tasks that can improve your rentals.
Avoid These Rental Property Accounting Mistakes
The most common rental property accounting mistakes are failing to digitize accounting, using your personal bank account, and waiting to add up expenses.
If you are still doing any of these things, it's time for some major changes. To help you during the transition stage and beyond, hire professional property managers.
Grand Rapids Property Management Inc. has been helping property owners for over 20 years. Now we want to help you. Contact us today to learn more about our services.