Three years ago Ben Smith, An investor from Fernandina Beach, Florida,
asked this question of real estate investors at BiggerPockets:
- Is there a way to automate rent collection?
- What is the best way to handle accounting? (Ex. Quick Books, Excel, etc.)
In other words, Ben was asking, “Is there a Rent Accounting package I can use?
What Records Do Landlords Need?
According to NOLO, most small landlords, if you haven’t formed a separate business entity to own your property and have no employees, you need just two types of records for tax purposes:
- a record of your rental income and expenses, and
- supporting documents for your income and expenses.
You need records of your income and expenses to figure out whether your rental activity earned a taxable profit or incurred a deductible loss during the year. You’ll also have to summarize your rental income and expenses for each rental property in your tax return (IRS Schedule E).
Do You Have Receipts and Documents?
You need receipts and other supporting documents, such as credit card records and canceled checks, to serve as insurance in case the IRS audits you. Such supporting documents enable you to prove to the IRS that your claimed expenses are genuine. Some expenses–travel and entertainment, for example–require particularly stringent documentation. Without this paper trail, you’ll lose valuable deductions in the event of an audit. Remember, if the IRS comes a-knocking, it’s up to you to prove that your deductions are legitimate.
If you own more than one rental property, you must keep track of your income and expenses for each property—don’t mix them. One reason for this time-stealing rule is the IRS requires that you separately list your income and expenses for each property on your Schedule E. Also, you’ll never know how much money you’re making or losing on each property unless you separately track your income and expenses.
What Does a Property Manager Do?
As we wrote in a recent blog post, What Does a Property Manager Do?, one of the duties of a property manager is to keeps track of income and expenses. Tracking the income and expenses for a rental property isn’t just a good financial habit — it’s the law.
Your deductions for your rental activities are only as good as the records you keep. Any deduction you forget to claim on your tax return or lose after an IRS audit because you lack adequate records, costs you dearly. Every $100 in unclaimed deductions costs the average midlevel-income landlord (in a 25% tax bracket) $25 in additional federal income taxes.
There is a solution to Ben Smith’s questions. Delaware Realty Management offers Rent Accounting that is good for all fifty states. It includes
- Online accounts for owners and tenants
- 24/7 online access
- Ability to access property reports
- Online payment collection
- Monthly statements with direct deposit
- Year-end 1099
- One fixed low fee
Our Rent Accounting Package
· SAVES TIME AND MONEY by choosing only the services you need
· GIVES YOU ONLINE ACCESS for owners and tenants with real-time reporting
· IS BACKED BY OVER 30 YEARS of property management experience