Landlords are becoming more frequent targets of IRS audits. If you don't want that to happen to you, you need to make sure that your accounting is on point. You don't want to get into any legal trouble.
How can you avoid making serious accounting mistakes? You didn't plan on becoming a financial expert when you started investing in property, right?
We're here to help. Read on for 3 quick accounting tips for property investors.
1. Separate Business and Personal Accounting
This is one of the most important things you can do as a real estate investor. You need to keep your business and personal accounts separate. In some cases, this is even a legal requirement.
Even if it's not a legal requirement in your specific situation, it's just a wise thing to do.
It's best to have a completely separate bank account for your real estate investment. You want to be able to view your funds at a glance without having to go through and separate money by individual transactions.
This will make it so much easier during tax season. If you're unlucky enough to be audited by the IRS, they will only have to look through your business account rather than your personal account.
2. Track All Income and Expenses
Organization is key when you're running a business, and in this case, your real estate investment is your business.
Your expenses are going to break down into specific categories including, but not limited to:
- Insurance
- Advertising
- Maintenance
- Travel
- Mortgage
- Supplies
- Management fees
Everything should be divided cleanly into its appropriate category. This will help you during tax season when you're looking for potential tax breaks and in the event of an audit.
You should also be tracking accurate rental income and ensuring that you know where it's going. Make sure you don't include security deposits in your rental income, as they are refundable.
Tracking your income isn't just important for legal purposes. It also lets you know whether or not you're on the right track. If you're not making enough money to cover your expenses, you'll know right away when you either need to lower your expenses or increase your income by increasing rental prices.
3. Hire a Professional
Accounting is tricky, and unless you already have a great deal of financial know-how, it can turn into a disaster. It's time-consuming, and one wrong move can complicate tax season.
It's in your best interest to hire a professional to help you. Whether you hire an individual accountant or a professional property management team (or both), they should be able to keep your finances in check so you can focus on all of the other components of property ownership.
Keep These Accounting Tips in Mind
If you've been investing in real estate, you should be aware of these accounting tips. You don't want to make any costly mistakes! Keep your work, and personal accounts separate, make sure you're tracking all income and expenses and consider working with a pro, especially if you're new.
If you're ready to work with a professional property management team in Memphis, we want to help you! Contact us so we can start working together today.
