Having a well-designed accounting system sets your real estate venture up for success. Here, I share some accounting tips for landlords to feel well off when it comes to their rental properties.
Create a Foundation for Success
Without a strong foundation, your house will collapse. In the case of accounting, your foundation is your set of records: organized and detailed recordkeeping will ensure you never (or at least, very infrequently) stumble into accounting pitfalls. Make a habit of updating your records daily; there’s nothing worse than a week or months’ worth of incomplete records staring you in the face!
Get on a Schedule
As mentioned, it’s easy to say you’ll file records, log a receipt or contact a resident later…until later comes and none of these tasks has been done! Keeping yourself on a regular schedule helps ensure that important processes don’t fall to the wayside. Try to set aside certain times of the day for getting specific tasks done, and try to save time-wasters—personal emails, cat videos and the like—for your lunch hour. Accounting-related tasks may seem dull, but doing a little bit each day allows for a much easier tax season.
Take a Targeted Approach
Being a landlord means being a problem-solver. From showers that leak to tenants who never seem to pay, there’s always something going on that needs your focus. Some will be larger time-wasters than others, so how can you streamline? Data analytics tools will help you detect where the chronic issues lie and how much they’re costing your bottom line, giving you a chance to regroup and implement a strategy to handle such problems. This will save you time to deal with other, more important things.
Digitize, Digitize, Digitize!
As per IRS standards, all receipts over $75 must be kept. Paper receipts floating around the office, your briefcase or handbag are just waiting to be lost. Digitizing your receipts means decluttering your system: all it takes is a quick snapshot and a moment to upload the picture to your receipt folder. Simple! Many recordkeeping systems are smartphone compatible, so be sure to take advantage of any available apps that make the process even easier and allow for quick filing on-the-go. Keeping all financial records online means always knowing exactly where they are, having an easy way to keep them organized, saving trees and saving space…all good things.
Keep Separate Bank Accounts for Separate Properties
If you are juggling two or three separate properties, keeping separate accounts for each one will largely improve your rental property accounting experience come tax time. Instead of having to remember which expense was for which property, or whether an expense was business or personal, all you will have to remember is to pay expenses and deposit funds into the correct bank accounts (by the way, this counts for personal accounts as well…never, ever, mix business expenses with personal ones. Better yet, never mix business and personal in general.) If maintained well, this ensures that the end of the year involves nothing more than downloading the transactions to a spreadsheet, and creating a profit and loss statement. Far, far easier than trying to delve into the records of yester-year and see which one belongs where.
Know When to Hold on and When to Let Go
Save yourself a lot of stress, and a lot of paper build-up, by following a basic rule of thumb. You should hold on to your tax returns and any corresponding documentation for three years, after that, the IRS can’t run an audit. If you plan on underreporting income (please don’t), the IRS is able to audit your returns up until six years after they’ve been filed. You should keep any records pertaining to employees for four years. If you keep paper records, make sure to shred and dispose of outdated records thoroughly to prevent fraud or identity theft.
Know When and Where to Invest
Accounting hacks aren’t all about saving money…the bottom line is promoting efficiency and ease-of-use. Investing in great tools, such as software or financial experts, may cost more initially, but save you tons in time and stress. Who cares if you save a little money if you end up with no time to enjoy it? Making smart investments will ensure your business runs like a well-oiled machine.
Find a Great Real Estate CPA
Why struggle solo? Whether you’re an old pro or a total newbie, everyone can use a helping hand: with the assistance of an experienced CPA, rental property accounting can be a breeze. For more tips and tricks, or if you have any questions about implementing other solutions in your business, I’d love to hear from you—contact me today!