Millions of landlords fail to take advantage of the tax deductions available for owning rental properties costing them to pay more in taxes than they have to each year.
If you're a landlord who is all too familiar with this problem, you need a better rental property accounting process. Without managing your books properly, you face tax issues and money loss.
Luckily, these problems are avoidable. Read on to learn our best tips for rental property accounting.
1. Create Checking Accounts for Each Property
The first step in rental property accounting in Tennessee is to create a checking account for each property you own. You can do this at a local bank.
If you hold your rental property in an LLC, the bank will ask that you provide your federal tax identification number and incorporation documents.
2. Cash Flow Through the Checking Account
All income and expenses for the rental property should go through the property's checking account. Fees for lease renewals, rent deposits, and maintenance coordination fees, to name a few, should all be paid out of the account.
If you use an online rental property software, link it to the correlating bank account. This allows for all payments to automatically sync and upload.
3. Reconcile Each Month
You'll have to understand your property's tax statements and 1099s to report them when necessary. To prepare for year-end, reconcile by comparing financial statements and property bank statements.
The numbers should always match. If they don't, figure out where an error occurred so that you can correct the mistake.
If you consistently have errors, consider hiring a property management service that will handle owner statements and reporting for you. When your accounts are reconciled each month, preparing for year-end is much easier.
4. Track Expenses in Real-Time
Although it is essential to reconcile at least monthly, you should also be tracking your expenses in real-time. This will help you avoid errors in accounting at the end of each month.
The mistake of not recording deductible expenses can cost landlords thousands each year. Instead of allowing admin tasks to build up, record expenses as they happen. Cloud-based software makes this simple.
5. Set up Automatic Payments
Owning multiple properties means you'll be dealing with various payments month after month. Handling manual payments can be difficult which is why many set up automatic payments.
When payments are scheduled to come from a specific property account, it will make managing each payment a breeze. Some software automatically does this for you and records the payments.
How Will You Run Your Rental Property Accounting?
Rental property accounting can get very tricky if you have more than one property. Luckily, there are tools and services out there that make keeping up with income and expenses easy.
By using the tips in this guide, you'll be able to organize and manage your costs better and make the end of the year a breeze.
We understand that handling rental property accounting on your own can be difficult. Contact us today to learn how our property management services in Memphis can help you.