Being a Naperville landlord involves wearing many hats. Out of all your duties, however, very few will be as time-consuming as accounting.
If you're not an accountant by trade, this part of the job is overwhelming. You must manage all payables and receivables related to the rental, from taxes to repairs. Even one misstep could have a big impact on your bottom line.
The good news: rental property accounting doesn't have to be so taxing. Here are four landlord tips that will help you simplify this process!
Separate Business and Personal Finances
The first step of any efficient accounting system is to separate your finances. Ideally, you'd set up a bank account for each rental property you own.
Why is this so important? For starters, it saves you a lot of time when you're reconciling your expenses at year-end. You won't need to go through hundreds of receipts looking for a specific security deposit deduction.
Separating your accounts is also a huge help when it comes to doing property taxes. Keeping your business accounts separate allows you to take advantage of every tax deduction you qualify for.
Automate Your Payments
Do you own more than one rental property? If so, you're dealing with several mortgages, premiums, and other payments each month.
The best way to manage these payments is to automate them. With the right software, these payments can go straight to your bank each month. All you need to do is set the right schedule and property-specific amounts.
Automation can also help you with rent collection. If your tenants have access to automatic payments, they'll be more likely to pay rent on time. Plus, online rent payments reduce the likelihood of accounting errors.
Track Expenses in Real Time
One mistake many landlords make is not recording expenses as they happen. Instead, they leave it for the end of the month or even year!
Oftentimes, this will lead to a scramble to record your deductible expenses. If you miss some, you won't get to claim them back. Over the course of a year, this can cause you to lose thousands of dollars.
The solution: use cloud-based software to track your expenses in real time. These days, many apps allow you to snap a picture of a receipt to record it as a business expense. Property management was never this simple!
Don't Forget About Schedule E
After deducting your expenses, you'll need to report them at the end of the year. To do that, you'll use Form 1040, also known as Schedule E.
A good way to think of Schedule E is as the end goal for all your accounting systems. Prepare for it by categorizing your rental income and expenses into key categories. Common examples include:
- Legal Fees
- Bank Fees
Rental Property Accounting and You
By taking advantage of the above tips, you can get a clear view of your finances while maximizing your deductions. If you're still not sure you can report everything accurately, consider outsourcing this task to a professional.
At PMI West Suburban, we offer a variety of rental property accounting services to all Naperville landlords. Contact us here to find out why we've been in this industry for over 20 years!