5 Top Rental Property Bookkeeping Tips For Landlords

Accurate rental property bookkeeping is crucial if you want to operate a profitable rental property portfolio. Just like any other business, maintaining good records will enable you to evaluate and understand your property’s performance and return on investment (ROI), as well as identify eligible expenses so you can minimize your end-of-year tax bill and reduce the potential for IRS tax audits. 

Rental property accounting tip: Travel and mileage deductions and depreciation are often missed when tracking expenses but they can be big savers at tax time.

Top Rental Property Bookkeeping Tips

1. Keep Your Business and Personal Accounts Separate

Our very first tip is to create a separate bank account for your business transactions. This should come with its own debit or credit card. Any expenses related to your property can come out of this account, and any income you receive from your property will go into this account.

Though not technically a legal requirement, it is strongly recommended to use separate bank accounts if you are an LLC for both liability protection and tax reporting. But even if you’re not an LLC, keeping your personal expenses and your business expenses together is not a great idea.

The reason this is our very first rental property bookkeeping tip is twofold. The first has to do with getting audited by the IRS. Do you really want them to go through all of your personal finances as well as your business expenses for evidence regarding your tax claims?

The second is that it will make your accounting life easier! When it comes to reconciling your transactions at the end of the year, having separate bank accounts will save you from having to filter through thousands of irrelevant transactions and will help prevent you from erroneously assigning a personal expense to your rental business.

Related: What Are The Tax Consequences Of Transferring Property To An LLC?

2. Set up Your ‘Books’ Correctly From The Beginning

When you set up your books, whether you're using spreadsheets, Quickbooks for rentals, or a purpose-built software like Landlord Studio, you want to do it right the first time.

This means creating expense categories to line up with your tax requirements as well as formatting everything so you can gain quick insights into finances and make informed decisions to increase profitability. An error at this stage could easily lead to missed expenses and overpaid taxes. However, doing it right can be a very time-consuming task, especially if you're using software like Quickbooks.

Helpful features to look for when setting up your rental property bookkeeping:

• The ability to track income and expenses at a unit, property, and organization level.
• Cloud-based so you can access your data from anywhere.
• Mobile app so you can up date your rental property books in real time.
• Bank feed reconciliation.
• The ability to store and organize receipts and supporting documents (such as receipts).
• The ability to generate comprehensive financial reports.

The easiest and most effective way to manage this step is to find a purpose-built software. Landlord Studio is a property management and accounting software designed to make your rental property bookkeeping as easy as possible. Quickly and easily set up your properties in the app and track your finances on a property-by-property basis with default categories already in line with IRS tax requirements.

Create your free account with Landlord Studio today to streamline your rental property accounting.

About Supporting Documents

Supporting documents provide evidence in the event of a tax audit by the IRS that the expenses you claimed for your business are valid. With digital bookkeeping systems you can keep your records up-to-date in real-time, and do away with piles of paper and boxes of receipts.

Using Landlord Studio you can simply take a picture of the receipt with your phone to digitize it, the software will automatically read and enter the receipt details for you. Then check and save the expense with the receipt attached for future reference.

3. Track and Categorize Expenses Regularly

As a landlord you should be tracking your rental property expenses regularly, this could mean weekly, monthly, or even quarterly if you don't have a large number of expenses. The more often you update your accounts, the smaller the task will be and the more likely your accounts are to be accurate.

There are several reasons this is so important. Firstly, it'll save you a huge amount of stress at tax time if all you need to do is run a report and send it to your accountant. Secondly, you'll be able to generate monthly reports to get detailed insights into your finances and fine-tune your operations for increased cash flow and profitability. And finally, it will allow you to maximize your end-of-year tax deductions while making your accounts completely audit-proof.

The IRS defines the different rental property expense categories for you to use on the Form 1040 Schedule E. The rental property expense categories include:

• Advertising
• Auto and Travel Expenses
• Cleaning and Maintenance
• Commissions
• Insurance
• Legal and Other Professional Fees
• Management Fees
• Mortgage Interest
• Other Interest
• Repairs
• Supplies
• Taxed
• Utilities
• Depreciation Expenses
• Other

Learn more about the Schedule E expense categories

4. View and Reconcile Bank Transactions

The next tip is to utilize software to reconcile bank transactions. This will help you save time, reduce errors, and increase your end-of-year tax deductions.

With Landlord Studio Bank Feeds connect your bank accounts to view and reconcile transactions with a tap. We'll auto-match transactions for you and you can create bank rules.

By removing manual data entry needs, and adding automation to the process Landlord Studio saves real estate professionals hours every month and can save you as much as $500 per property per year.

5. Streamline Rent Collection

It’s not just about tracking your expenses. You also need to keep track of all the income that your rental business generates. Having a good rental property accounting software will make this easier, but there’s more you can do to ensure accurate income tracking without the hassle.

Explore online rent collection tools that work with your financial tracking software to streamline the management of your rental property accounting. For example, when you use Landlord Studio to collect rent, not only does it come with all of the benefits of online rent collection, with auto-pay, the ability to block partial payments, automated rent reminders etc. It will also, automatically track your income against either the relevant lease and tenant.

This means you can automate the entirety of the rent collection and income tracking process to avoid manual data entry and errors. At tax time, simply run your reports and share them with your CPA or accountant.

Bonus: Stay On Top of Your Finances Throughout The Year

Once you’ve got your rental property bookkeeping set up you need to stay on top of it throughout the year and regularly review your finances with key reports like your P&L.

Landlord Studio makes it as easy as possible to stay on top of your accounts with features like bank feeds, receipt scanner, automated mileage tracker, and a mobile app. At the end of the month, quarter, or year you can instantly generate any of over 15+ accountant-approved reports including a P&L (profit and loss) report, a trailing twelve months, and a specially designed Schedule E report.

Reports provide a quick reference to determine how well your business is running. Landlord Studio's reports can be generated whenever you need them and either downloaded onto your device or shared straight from the app with your accountant or business partners.

With these reports, you can identify areas of overspend and rental accounting discrepancies allowing you to make informed investment decisions and maximize ROI.

Final Words: Rental Property Accounting

While it may not be the most exciting thing, sitting down and regularly going through your rental property books is essential if you want to operate a profitable and scalable rental property portfolio. You should also make sure you're familiar with the landlord tax obligations and ensure your books are maintained accordingly - for example you need systems to track depreciation, have adequate records for mileage claims, and understand key real estate tax saving strategies.

Thankfully, you don’t need to spend hours manually reconciling expenses or getting lost in messy spreadsheets. With purpose-built rental property accounting software like Landlord Studio, you can save time and increase profits by streamlining your rental property bookkeeping.

Using the Landlord Studio app allows you to update your accounts quickly whilst on the go. You can easily reconcile your bank transactions, digitize receipts at the point of sale, to reduce manual data entry for more efficient rental property accounting and more accurate accounts.

Find out how Landlord Studio can help you streamline your rental property business →

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