Real estate is an active investment that needs hands-on management, from finding tenants and signing leases, to day to day admin tasks such as property maintenance and income and expense tracking.
One of the essential ongoing tasks for effective rental tracking is keeping accurate records of finances. This allows investors to gain detailed insights into the performance of their portfolio and file an accurate tax return at the end of the year that mitigates their overall tax liability. In this article, we explore rental tracking tips and tricks to help you increase your bottom line.
What records are essential for rental tracking?
There are a number of important documents that need to be kept for future reference, these include but aren’t limited to:
- Copies of current and historical leases. For each new tenant, you should sign an up to date lease agreement and store that securely in both digital and physical format.
- Proof of income. You should keep a record of all the rent collected so that you can prove exactly how much income you’ve made from your property over the course of the tax year.
- Invoices and receipts. Whilst the IRS does not require you to submit your receipts when you file your tax return if you do get audited they will want to look at them. The preferred strategy is to digitize these receipts at the point of sale with a receipt scanner tool like the one built into Landlord Studio and store them securely in the cloud.
- Mortgage and finance documents. Keep all of the statements and bills related to your property financing and monthly payments. Mortgage interest is a deductible expense which you should be tracking.
- Copies of legal documents and expenses. Legal fees are deductible, additionally, any legal documents that may be necessary should you need to pursue an eviction should be stored securely in a place where they can be found and used when needed.
- Title deeds and the sale papers. You should keep the title deeds or proof of sale for any of your investment properties.
6 tips for keeping accurate expense records
Separate personal from business accounts
By keeping all of your transactions in separate accounts it’ll be much easier to identify and track expenses related to the management of your property and claim them as deductible expenses.
Update your expenses regularly and consistently
By setting up a system that allows you to keep track of expenses in real-time you’re less likely to miss deductible expenses, less likely to make errors, and less likely to lose any of the supporting documentation. Ultimately you’ll be able to claim more in your tax return.
Connect and reconcile transactions
Reconciling transactions is the process of matching an expense with the actual transaction in your bank account. This is important to ensure that your accounts are accurate and that you haven’t missed any expenses. The best way to do this is using an expense tracking tool at Landlord Studio which allows you to connect your bank account and reconcile from within the system so you don’t have to flip between multiple apps or print pages of bank statements
Digitize supporting documents
You’re not required to keep physical copies of supporting documents like receipts. However, it is recommended. Digitizing documents such as receipts allows you to do away with shoeboxes and file cabinets of paperwork. Instead, all the relevant documentation is easily accessible from anywhere.
Use purpose-built software
There are plenty of software designed to make your life easier. However, landlords should look for a solution that is designed specifically for them. General accounting software like QuickBooks can be challenging to set up and use for rental properties and they don’t come with additional time-saving property management features.
Consult a professional
Discuss your tax plan and accounting tactics with a trusted and qualified CPA or tax professional. This is the most effective way to ensure you file an accurate tax return and mitigate your overall tax liabilities.
Accurate rental tracking is essential if you want to run a profitable real estate business. Rental tracking includes lease and tenant management, as well as, maintenance and income and expense tracking.
All important documentation should be securely stored for future reference. It’s recommended to use a system that allows you to digitize your records and supporting documents such as receipts and store them securely in a cloud server for easy access at any time. The right property management software can help you stay organized in this way while also streamlining your processes and helping maximize your tax deductions.
Landlord Studio allows you to track income and expenses on a property-by-property basis connect your bank accounts to reconcile transactions in real-time, digitize receipts, and instantly generate accountant approved reports at tax time.
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