Have you been lax with your Chester County's rental property accounting tasks? If so, now's the best time to change that; otherwise, you may face an Internal Revenue Service (IRS) audit. According to the IRS, landlords who can't provide evidence to support items reported on their tax returns can face additional taxes and hefty penalties.
Besides, maintaining good rental-related records can help boost rental income.
To help you get started, Times Real Estate Group compiled this guide on efficient real estate bookkeeping and accounting. Read on for property management tips regarding landlord finances, investment property tax, and more.
Separate Accounting for Each Property
According to Bankrate, individual investors own 70% of rental units in the country. Many own one property, but others have at least two. You likely belong in this group unless you're a corporation or a partnership.
If you have multiple properties, keep their records separate. Doing so allows for ease of rental income and expense tracking, as you can see which properties are profitable and which aren't. It also helps you organize supporting documents for your tax returns, which you need should the IRS audit you.
Sub-Categorize Each Property's Records
To simplify accounting and bookkeeping further, create a main folder for each property's records. Within this folder, create "sub-folders," which will house specific types of records.
For example, one of your sub-folders can be for property purchase-related documents. They can include:
- Appraisals
- Closing statements
- Sales invoices
- Mortgage payments
Next, create a sub-folder for legal records related to your lease agreements. Here, you can organize tenant applications and background screening documents.
Another sub-folder can be for rental income, like your tenant's rent payment receipts. Separate this from rental expenses (e.g., utilities, property repair invoices, etc.).
Finally, we have the tax-related documents. In addition to your duties to the IRS, you must pay the investment property tax levied by Chester County and your municipality.
Fortunately, the Chester County Treasurer has partnered with 23 municipalities for tax payments. If yours is part of the 23, you can pay county and municipal taxes through the Chester County Treasurer.
Use Rental Property Accounting Software
Rental accounting software can automate many management tasks, helping you save time and energy. With the right software, you can:
- Send automated rent payment reminders and lease renewal notices
- Get notifications for pending payments you must make (e.g., utility bills, property repairs, taxes, etc.)
- Create and manage expense lists for each rental property
- Calculate rental expenses accurately
- Deduct expenses from income
- Generate financial and tax reports
As you can see, accounting software can help you determine if you're losing money or making some. It allows you to easily spot areas for improvement (e.g., expensive property repairs or utility bills) to maximize property returns.
Make Rental Property Accounting a Breeze
Separating and sub-categorizing each property's record and using accounting software can help with accurate rental property accounting. With precise and organized records, you can avoid legal trouble, boost profits, and keep your property in top shape.
If you need expert help with your Chester County properties, Times Real Estate Group is your go-to. You can rely on us for everything you need to run a profitable rental, from marketing to tenant placement, accounting, and property maintenance.
Contact us today, and we'll gladly throw in a free rental analysis!
