updated 07/09/20
The ado about tax season slowly abates. The time has come to breathe out and take a proper look at work you have done. You did it, you filed on time. Was it hard this year? Did you avoid opening the drawer full of receipts and just make up numbers? Are you going to stress about an audit for the next three years?
To avoid all the tax season pre and post stress we recommend making life easier, but setting up rentals with automatic accounting. At first, you may think it’s too early to worry about next year. True, if you like sleepless nights during tax season - our tips are not for you. But if you do not, we prepared three tips to make your next tax season painless:
1. Automate the process
With technology now encompassing our lives we should use it to make mundane chores automatic. Accounting is a very basic process. We receive rent, then spend money on fixing up the rental. Why not have a way to track both costs and assign it to the property automatically, then all we do is run reports. Your phone, your tenant's phone and then handyman’s phone can do a lot more than communicate. Take advantage of it, so you don't have to manually keep track of money coming in and out.
2. Store your information in the cloud
It’s crucial to maintain careful records of all expenses that relate to the conduct of your real estate business, take advantage of every allowable deduction you’re entitled to. “You should grab an envelope and start saving all of your receipts now! A $100 receipt for business expenses is the same as a $100 bill”. This is what founder of one financial educational company says. In other words, you just have to collect all your receipts.
Anyway, there is a tip how to ease the process. Sure you can get an envelope to write who, where and why on each receipt, so you are prepared to prove transaction with your tenants or vendors. But you can get a cloud property management system and save all your expenses inside the system automatically. Even if you go to the hardware store- quickly snap a picture and enter the amount and the receipt is stored while the transaction is entered into your accounting system and you're done. You can start running reports and not have to touch, store or manually enter receipts any more.
Stay organized and on top of all your expenses during the year; many commission based business owners pay extra money in taxes because they don’t stay on top of their expenses.
3. Maximize your tax deductions
Instead of guess how much you need to report on your schedule E and taking in the maximum deductions, which are limited, you can account for all the expenses you forget. Things like:
- Car mileage & gas
- Phone
- Phone plan
- Computer
- Home internet plan
These are just some of the categories of expenses you can write-off when you create your account for example at TenantCloud and store everything in one place. All of your receipts, online payments, canceled checks and credit card statements will be in one place and categories for easy access when you want it. You won’t need hours to sort receipts and paperwork into the correct categories, everything is sorted automatically. Still, be sure not to delete copies of emails for out of town travel that states the reason for your trip.
With these three easy tips you will be able to avoid drawers of receipts, endless hours adding up receipts (twice, three times), lost deductions and avoid paying too much in taxes. I know saving your money is very important, but let’s be honest - this is too easy for the amount of sleep loss, stress added, frustration and angst that lingers from tax season. Just stay organized through the whole year!
The Tax Implications of Becoming a Landlord: Is It Worth the Deal?
Tax Season Tips Or About Software Application, Calculating Interest Expense And More
The Landlord’s Guide to Tax Season 2020: IRS form 1099, form 1065, Section 1031, Schedule K-1, form 1120-S
