Did you know that 1/4 of Americans don't understand how taxes are determined? Personal tax returns are hard enough, but what if you are an investor? It becomes even more complicated.
If you keep good records and separate your rental properties from one another, things won't be so hard. This is why rental property accounting is so important.
Still not convinced? Keep reading to learn more.
Why Is Rental Property Accounting Important?
Investors must practice good rental property accounting from their first property investment and from there on. This lets investors easily scale up and grow their investment portfolios.
Rental property accounting allows you to generate the most profit from various properties and receive essential IRS tax benefits.
Tracking property investments means you can compare which properties are most profitable if you have more than one. Analyzing income and expenses can help investors find areas where they can reduce operating costs.
Monitoring accounts payable can help investors pay their bills on time. Creating financial statements provides insight into future financial endeavors.
With all of this, rental property investors will be ready for tax season.
Rental Property Accounting: The Basics
Understanding the basic principles of rental property accounting is a great place to start. Using these tips, investors will find it easier to keep track of income and expenses:
Separating Bank Accounts
Investors need to separate their personal and business accounts first and foremost.
If you have multiple properties, create a bank account for each rental property as well. Open a debit or credit card to make payments easier.
Creating an Accounting System
Investors should have a good accounting system in place to reduce the risk of forgetting to report income or over-report expenses. Both of these mistakes will get you in a lot of trouble with the IRS.
There are various software programs that can automate income and expense tracking. They will also generate automatic financial reports monthly, quarterly, and yearly.
If you hire a rental property management company, they come equipped with software that can make accounting simple.
Knowing Basic Tax Forms
Having an accountant or CPA file your tax returns each year is recommended, but it's still a good idea to understand the basic tax forms.
For example, Schedule E (Form 1040) is used to report income or loss from rental real estate. Form 1099 is necessary if a tenant pays more than $600 in rent annually.
If you keep good records and understand tax law, you may deduct certain rental expenses on your tax return, such as:
- Repairs
- Depreciation
- Operating expenses
- Property tax
- Mortgage interest
To better understand rental real estate income and deductions, click here.
How We Can Help You
If you invest in property in the Fort Lauderdale area, we can help you! Our rental property management company knows the ins and outs of managing real estate, including expertise in rental property accounting.
You don't have to manage your property on your own. Contact us today to learn how our services can help investors like you.
