Rental Property Bookkeeping Tips For Landlords

Keeping detailed and accurate accounts is vital when managing properties. Here are our top rental property bookkeeping tips for landlords.

Accurate rental property bookkeeping is crucial for rental property management. Just like any other business, maintaining good records will enable you to evaluate and understand your property’s performance and ROI (return on investment), as well as identify eligible expenses so you can minimize your end of year tax bill and reduce the potential for IRS tax audits. Remember to consider factors such as depreciation and mileage as they can significantly impact your tax savings.

Rental Property Bookkeeping Tip: Mileage and depreciation are often missed when tracking expenses but they can be big savers at tax time.

The top 5 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 relatable 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.

Read: Should you form an LLC for your rentals?

The reason this is our very first suggestion is twofold. The first is 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 undoubtedly make your accounting life easier!

Related: Key Figures for Evaluating an Investment Property

2. Set up Your ‘Books’ with Supporting Documents

When you set up your books (you can do this in excel or with the help of software like Quickbooks) 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. Doing this step wrong could be devastating for your business. However, doing it right is traditionally a very time-consuming task.

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 solution 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 inline with IRS tax requirements. Plus, you can easily digitize and store all of your supporting documents in the same place.

How it Works:

  1. Create your account
  2. Add your property
  3. Create your lease

You're now ready to track your income and expenses. You can even enable online rent collection which will enable you to automate the entire rent collection and income tracking process.

Track tenancies, leases, income and expenses, and store important documentation so you can access it anywhere, anytime.

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. Although there are advantages and disadvantages to hard copies, having mobile bookkeeping is convenient because you can keep your records up-to-date in real-time, and do away with boxes and boxes of receipts that get compiled over the years.

Using Landlord Studio you can quickly and easily digitize all your records and documents by simply taking a picture of them with your phone and then save them all in one place.

Related: The Benefits of Property Management Software for Landlords

3. Track and Categorize Expenses Regularly

As a landlord you should be tracking your expenses on a regular basis, 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 runa. 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 opeations 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.

To help reduce issues the IRS actually defines the different expense categories for you to use.

  • Advertising;
  • Auto and Travel Expenses;
  • Cleaning and Maintenance;
  • Commissions;
  • Insurance;
  • Legal and Other Professional Fees;
  • Management Fees;
  • Mortgage Interest Paid to Banks, etc.;
  • Other Interest;
  • Repairs;
  • Supplies;
  • Taxed;
  • Utilities;
  • Depreciation Expenses;
  • Other.

Learn more about rental property expense categories: Rental Property Deductions Checklist

Easily track and categorize expenses and upload supporting documents to Landlord Studio.

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 your 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. Stay On Top of Your Finances

Once you’ve got your rental property bookkeeping set up you need to quickly and easily be able to generate professional reports that draw out the key figures you need and give you fast access to an overview of your financials.

If you're updating your accounts on a regular basis with a software like Landlord Studio staying on top of the numbers shouldn't be hard. Instantly generate any of over 18 accountant approved reports including a P&L (profit and loss) report, a trailing twelve months, and even an Schedule E report.

Reports are a quick reference point 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.

With these reports you can learn invaluable things, like where you are spending too much money which can help keep your properties in the green.

Final Words on Rental Property Bookkeeping

As tedious as it may be to constantly be updating your accounting it must be done consistently. This is why we created the landlord studio software.

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 and ultimately save time and keep better more accurate accounts.

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