Keeping Track of Rental Property Expenses

Savvy business people know that rental properties can be a good investment if they’re purchased at the right time and managed well. Not only are they a good source of steady income, but they also provide tax deductions, which many business owners find appealing. To take advantage of those tax deductions, however, property owners need to have their paperwork in order, with rental income and expenses organized and documented before tax time. Otherwise, they may miss out on the benefits they were hoping to gain by purchasing the property in the first place.

You Have to Know Where the Money Goes

Tracking rental property expenses can be tedious, but it’s critical for any rental property owner. According to an article in U.S. News & World Report, unusually large business deductions fall into the top nine audit triggers for the IRS. If you’re going to claim deductions on your rental property, you need to maintain good records.  

So what’s the best way to keep track of all the expenses—and income—that come with owning a rental property? Here are a few tips from Adams Accounting Solutions. These tips will help you stay organized throughout the year, making the tax preparation process that much easier. Taking these steps will also help ensure that if you are audited, you have plenty of documentation to back up your claims.

Set Up a Filing System 

The first step is to create a filing system to help yourself stay organized each month. This system can be as simple as an accordion file set up by month or individual file folders labeled for each type of deduction. The important point is to have a place to file all your receipts, whether they’re for your mortgage payments on the property (the interest is tax-deductible) or receipts for the payment of such items as utilities, repairs, or professional services associated with the property.

Track Income and Expenses

Once you’re in the habit of collecting and organizing your receipts, you need to start tracking cash outlays and inflows. Many property owners do this with a simple Excel spreadsheet, which can be sent to their accountant when preparing taxes.

There are also software systems that help property owners stay on top of these expenses. Some software, such as Buildium, enables you to manage the property from a marketing and leasing perspective and also handles back-end accounting. QuickBooks Online is another software program designed to handle the general accounting needs of small businesses and rental property owners. Electronic systems like these allow you to log expenses and income and then generate revenue and profit and loss statements with the push of a button.

Make a Pledge to Use the System

It doesn’t matter how great the filing system is or how robust the software if you keep forgetting to use it. Once you decide on a tracking system and get it set up, make a pledge to yourself to use it regularly. This is often best accomplished in baby steps. Set aside an hour a week to collect receipts and file them away or enter them into your software. Once you’ve done this for a few months, you may discover that you don’t need to do it every week. Maybe once a month will suffice. 

Some rental property owners find it easier to hire an independent bookkeeper to manage all this for them. That’s also a great option. The important thing is to be consistent, whatever method you choose. And if you hire a bookkeeper, make sure it’s someone you trust.

Adams Accounting Solutions Specializes in Rental Property Accounting

Tracking the expenses associated with owning rental property can be challenging. At Adams Accounting Solutions, we’re specialists when it comes to all this. We’re QuickBooks certified and are happy to help you set up QuickBooks Online and show you how to use it to track rental property expenses and income. We’ll also educate you on the types of documents and receipts you need to keep to back up your deductible expenses.

Make sure you’re getting the full benefits of rental property ownership. Call Adams Accounting Solutions at 913-888-9100 today to schedule an appointment!