The average accountant salary in the US is $61,359 per year and if you’re a landlord with only a few rental units, paying that each year for bookkeeping would completely wreck your ROI. Still, your books need to be in order so that you can track your finances and do your taxes properly.
This means that most landlords do their bookkeeping and only visit an accounting service when they need it. If that’s you, then you need to know about property management bookkeeping mistakes that even big property management firms make. Read on to find out what they are.
1. Accepting Mainly Cash
Everyone, including the IRS, knows that running your operation on a main cash basis is the best way to hide money from the tax man. Because it’s such a common practice, even the average IRS agent can find out what you’re up to just by glancing at your bank accounts or living standard if they do an audit.
Not only does this leave you legally vulnerable, but it also sets you up to lose receipts and gives you fewer legal options if a tenant doesn’t pay. Losing receipts could result in you under-reporting or over-reporting your income, both of which have negative consequences for your business. Switch over to online transactions to avoid all of these headaches.
2. Mixing in Personal Expenses
Reporting “personal expenses” as business expenses is only allowed within very strict degrees. If you make purchases that facilitate your work, lunch for meetings, or gas for traveling between rental units, then that’s fine but when you start deducting your private residence’s electric bills and children’s school fees it becomes illegal.
To avoid this or even the temptation to do this, have a separate bank account for business. This also makes monitoring your business’s performance easier as it ties transactions to a single account.
3. Forgetting About Losses
For a great legal way of deflating your taxes, don’t forget to account for drops in your property value. If your property gets revalued and its value drops, you can deduct that as a capital loss.
This doesn’t just have to be for immovable property. Registering your property as a small business opens up a world of tax deductibles. From depreciation on your ‘business car’, to insurance and even repairs to rental units.
If this sounds technical, try a property management service like Balanced Asset Solutions accounting services. Outsourcing your property management bookkeeping is great for when you would rather focus on building client relationships and hunting for opportunities.
Learn About Property Management, Bookkeeping, and More
If you’re a landlord or a budding property manager, keeping your books in order makes your life much easier. If you want to do this without hiring a property management company, then you need to watch out for common property management bookkeeping mistakes.
Use electronic payment systems so that it’s easier to track and be sure to use a separate business bank account. Don’t forget that you can use losses to lower your taxes and just make sure that the losses you account for are legal.
