23 Dec Hitting the Books: Tracking Rental Expenses
Bookkeeping is the unspoken “dirty work” of owning rental property. Tracking expenses is ongoing and time-consuming, not to mention we’d all rather be doing something else with our time. While it may seem easy to put it off for another day, or worse – put it off for the end of the year, a detailed account of expenses from month-to-month is a must-have for every landlord.
Remember, rental business is just like any other business, and it’s important to cover your bases. Tracking expenses plays a vital role in filing taxes with ease (and saving money while doing it!), not to mention it helps to better build a foundation for future monetary needs, such as applying for loans.
Organized books also help to track maintenance services, tenant payment records, and much more. Tracking expenses will not only help you become much more organized in the present, but it can also save you time, stress and money in the future, in the unfortunate event of a tax audit or flaky tenant.
Contents
Start with the Records
Owning a rental business incorporates a plethora of different records that are vital to keep on hand for easy-access.
In collecting all of your records for safekeeping, it helps to imagine your business from the ground up. Start by collecting any applicable property deeds and insurance policies necessary to start a business, as well as any applicable loans or mortgages. Articles of Incorporation or LLC records should be bundled in as well, and any applicable tax records from the previous year.
Next, move to any applicable legal documents, court appearance records, fines or eviction notices. Finally, a record of all tenants’ past and present rental payments, as well as any communication between yourself and each tenant in writing, should be stored in records. If you have not kept a record of these before, the time to start is today. This will help you remain organized as tenants move in and out, inquire about repairs or maintenance, and potentially miss payments.
Next Up: Expenses
With all your records in one place, it’s time to move onto keeping an organized log of deductible expenses. Unlike collecting all business records and storing them in a safe place, organizing expenses is an ongoing project that must be kept as expenses occur. It’s in your best interest to get into the habit of keeping a paper trail anytime a new expense arises.
Deductible expenses include property management fees, HOA dues, property insurance premiums, and maintenance costs.
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You can also deduct any legal or accounting fees for professional services, as well as fees for acquiring new licenses or software. Advertising costs, such as social media campaigns or even physical signage, can also be deducted as a business expense.
The Best Route for Tracking Expenses
While tracking expenses can be a daunting project, the digital age has brought a lot of ease in book- and record-keeping for businesses. While it is still important to have physical copies of all applicable records, gone are the days where a book of handwritten expenses is necessary.
Spreadsheets offer ways to make quick updates to an ongoing log of expenses, but they still require time and labor, not to mention stress.
If you’re looking to stay organized with as little labor as possible, and you’re not using a property manager who maintains detailed expense tracking for you, consider using software like Quickbooks. With just an app on your phone, you can simply scan receipts as expenses are encountered while the Quickbooks app organizes them and updates the expense log in live time.
You can even link the software to your business bank account and directly categorize certain expenses such as recurring contractor and mortgage payments, make automatic payments, and track income to organize tenant payment records.
The best part income and expense tracking software is the ability to generate reports in live time for filing taxes, balancing budgets, and gathering documents. The software acts like your own personal accountant by producing income expense reports, cash flow statements, and balance sheets – so you can see all of the money in front of you, without having to dig through your books for old receipts.
Get Ahead of the Game
Tracking expenses is not a very fun job, and nobody wants to be the one stuck doing it – but the good news is, you don’t have to be. All landlords are required to have organized records and expenses, but the time, stress and labor that goes into this process is entirely optional. Utilizing the services of a property manager usually comes with detailed accounting records for all income and expense transactions processed for you by the management company.
If you don’t have the time or desire to maintain these records, a property management service may be a good solution.
