Learning how to keep rental property records and maintain an organized system for all your real estate documentation can be daunting. Accounting in general is incorrectly seen as difficult and laborious, but with the proper tools and software, you will be managing your business finances with ease. Below are the top four tips to maintaining your rental business’ financial records.
#1: Use Property Management Software
Property management software is made specifically for landlords to help them with their day-to-day tasks. Automating accounting and bookkeeping for landlords through property management software is a great way to reduce costly and avoidable mistakes. When you pick the right software for your company after doing your own research, you can reduce the time you spend on tedious tasks like making eviction notice with help of Eviction Notice Template Alabama, and when the software records every transaction automatically, you also can keep organized more easily.
#2: Properly File 1099s and W-9s
If you hire independent contractors to help you with your rental properties, you should become familiar with 1099s and W-9s. Asking the people you work with to fill out the proper forms is a good way to maintain professionalism and organization within your business come tax season.
A 1099 form reports a non-employee’s yearly income from working on your properties. Non-employees like contractors require you to take the extra step of filing a 1099 for income they made from your business if that amount is over $600. If not, there’s no need to complete a 1099.
As for W-9s, employees need to complete one when they start working for you. Your employee will need their taxpayer identification number to tell your tax professional whether they need to file a 1099.
#3: Keep Itemized Records
You’ll need to keep records of all income and expenses both to be able to remain compliant with the IRS and to simplify accounting.
For income, the IRS requires disclosure of all income you earn from rental properties. A common and easy way to track your income is to keep a rent roll. A rent roll is an overview of expected and historic income. It tracks any rent payments that are due and fees like late fees. A rent roll also collects data from each tenant’s lease and combines it into one, readable document. This is helpful because you can see who’s paying on time and where your income comes from at a glance.
Keeping detailed records of your expenses is key for maximizing deductions. You want to make sure you’re not missing out on savings. Also, if you are experiencing an audit, you have to be able to provide documentation of all expenses related to your rental business. If you can’t prove that your reported expenses are accurate, you can incur penalties. Documentation can be in the form of receipts, bills, or canceled checks.
#4: Keep a Reliable Tracking System
It’s important to set up a system for tracking your expenses and income. It can be tiresome to keep track of so many data points for each property, so investing time into researching a good accounting software for landlords will definitely be worth your while. There are plenty of options to explore, the most popular one being QuickBooks.
You also could investigate property management software, since platforms like Innago offer accounting capabilities that can take care of these records for you, along with many other advantages and helpful tools to help you manage your rental business.
Conclusion
When thinking about maintaining great financial records, the best tip is to adopt quality property management software. When you take the time to transfer your day-to-day business duties to property management software, all the tips above become much easier to follow.
