Last Updated on Nov 1, 2022 by James W
When you are a landlord managing numerous properties and tenants on your own, one or the other responsibilities tend to fall on the back burner. Most often than never, these responsibilities fall under accounting tasks. The reason is managing expenses, and filing receipts is easier said than done. In taking care of other tasks, such as collecting rent, upgrading properties, and screening tenants, you might misplace or lose the necessary receipts. This will eventually affect the business accounts.
Fortunately, setting up rental property accounting software can help you manage the accounts. Apart from this, you can follow the tips given below. So, let’s begin.
- Keep Separate Business And Personal Accounts
Generally, when a person commences the rental property business, they make the mistake of using a personal account to receive rent and pay bills. Obviously, it will affect personal finances as well as lead to confusion when sorting out the expenses.
Therefore, the first and foremost step you should take is to keep the personal and business accounts separate. Not only this, but you should also get business credit cards and debit cards. This will ensure that you do not mix your personal and business expenses and record everything accurately.
Moreover, having separate accounts will assist you in borrowing loans for the expansion of the rental property business.
Tip: If you manage multiple properties across different cities or states, you can set up separate accounts for each property. It will make bookkeeping easier and enable you to know possible loopholes in your strategy.
- Use Rent Collection Software
Using digital tools to manage your business will streamline all the tasks and boost efficiency. To put it simply, by using rent collection software, nearly half (or more) of your work as a landlord will reduce significantly. This type of software can aid the work of tenant screening, listing, and marketing, exporting rent payments to spreadsheets and offering a variety of payment options. Once the initial payment account is approved, the money will be transferred to your account within 3-4 days.
Needless to say, this way, you can rest assured that all the tasks are managed well. This will also save you time to focus on other matters related to business and its growth.
- Understand Taxes
Generally, it is advised that you become familiar with the relevant tax forms as soon as your business is up and running. This way, bookkeeping, and accounting will become much simpler and more precise.
For instance, every employee and non-employee who performs any work for your company must submit W-9 and 1099 forms. A contractor’s tax ID number and the nature of their firm are listed on a W-9 form. Non-employees who earned more than $600 from your real estate business throughout a calendar year will also need a 1099 form.
In short, your onboarding and bookkeeping procedures will go more smoothly if you know which basic tax forms to use and when. A basic understanding of W-9 and 1099 forms will be helpful for the time being. However, staying updated with more tax laws and guidelines as you operate your firm would be wise.
Word of caution: Bear in mind when tax season rolls around, this paperwork will be required, and filing taxes incorrectly carries costly penalties. Talk to a tax expert to ensure that you comprehend the fundamentals of taxes as soon as feasible.
- Hire A Certified Public Accountant
Finally, even if you are well-versed in the accounting and bookkeeping basics, the possibility of human errors during recording and analysis still exists. Therefore, you should consider hiring a certified public accountant (CPA) specializing in the real estate industry to manage your accounts.
Agree or not, they can assist in tracking and managing your rental property income and expenses most effectively. Your questions, such as How to maximize your tax advantages? How to maintain your finances in order as your company expands? How to keep tabs on tenants? All will be answered by your CPA.
As you increase the number of rental properties in your portfolio, your financial situation becomes more complex. To ensure that tax season goes off without a hitch, you need to work with a qualified CPA.
To Sum It All Up
Managing a rental property is a daunting business in itself, and recording all the financial transactions on top of this will make the work more difficult. Thankfully, you can use the measures mentioned above to streamline operations. Not to forget, when you have everything well recorded, you can formulate future plans accordingly. It will assist you in generating more revenue.