Once the lease ends, you have 21 days to return a security deposit to your tenant. If your accounting records are not in order, this can become challenging. This is one of many reasons you need a rental property accounting system in place.
Treat your rental property like a business, and follow these five tips when managing your accounting.
1. Separate Personal Finances
Treat it like any other business if you decide to become a landlord. Separate your personal finances from your rental income.
Set up a checking and savings account. You also need a legally compliant method for holding security deposits.
That way, you can easily manage your rental accounting records. If you have to provide documentation to a lender or the IRS, you can easily do so when your finances are separated.
2. Plan for Taxes
You will need to pay property taxes on the real estate and income taxes on the money you make from renting it. To do so, you must keep accurate and detailed records of your income and expenses.
Several expenses qualify for deductions on your federal and state income taxes. However, you need to keep records of these expenses. That way, you can provide documentation if you go through an IRS audit.
3. Create a System
Life can get hectic with multiple demands on your attention. This can lead to accounting tasks falling through the cracks. Having a system in place ensures you record all of your income and expenses.
For example, perhaps you put all receipts and invoices into a folder and process them once a week or month. In contrast, you could have a system where you immediately record everything the moment the transaction happens.
4. Use Cloud Accounting Software
Embrace modern technology and use a digital property bookkeeping system. After uploading paper documents into your digital system, you can keep them in a folder. Modern systems can scan your invoices and receipts, automatically inputting the information into your accounting records.
A digital system that connects to the cloud makes managing your rental property accounting easier. You can access your financial records at any time and from anywhere.
Using digital technology also enables you to streamline your accounting processes. You can automate some tasks and streamline reporting.
5. Get Professional Help
Hiring a property management service can be a valuable resource. They can manage the accounting of your rental property and then provide you with regular financial reporting.
Improve Your Rental Property Accounting
These five tips will help you improve your rental property accounting system and give you an accurate picture of its performance. Start by separating your rental property finances from all other accounting. Then, create a system that ensures accuracy to help you prepare for tax season.
At PMI East Bay, we provide clients with an online portal system. We can also manage the property and provide regular accounting reports. We aim to help rental property owners turn their investment into a profitable one.
Set yourself up for financial success by working with the experts at PMI East Bay.