It’s everyone’s favorite time of the year: tax time! While you may not enjoy doing your taxes, you can certainly make it less painful for your rental property management business by using these tax time tips.
1. Implement an Accounting System That Works for Your Business
Like many businesses, you may have employees who work from home or have flexible schedules. You also need to have multiple employees working from the same document at the same time. Your accounting system should be accessible, and you also need it to relate directly to your rental property management business. This allows you to create reports on the income and expenses from a specific property or from a group of properties in a certain area. Implement an online rent payment program as well, making it simpler to track who has paid and who has not. Online accounting that is synchronized with your other business functions allows you to quickly and easily assess profit and loss.
2. Document, Document, Document
Excellent documentation and online document filing will allow you to access any files that you need when it’s time to do your taxes. When you store your documents online, you’ll have access to everything you need, wherever you may be located. Even if your business suffers from a fire or a flood during the tax year, you’ll be able to recover your documents. Managing your documents online makes it much more difficult to lose that receipt or misplace a vendor invoice.
3. Understand Your Deductions
During the year, you need to keep track of all of your deductions so you can reap the benefits at tax time. These include cleaning, insurance, depreciation, equipment rental, repairs, trash removal, and yard maintenance. Keep all of your receipts, bank statements, and canceled checks to ensure that you have proper documentation for your deductions. According to HouseLogic, owners or management companies who own the building can also “deduct expenses related to traveling locally to a rental home for such activities as showing it, collecting rent, or doing maintenance.”
4. Know the Difference Between Repairs and Improvements
When it comes time to get organized for tax time, you need to understand the difference between repairs and improvements. Repairs are deductible in the year they occur, but according to TurboTax, “The cost of property improvements generally must be capitalized and depreciated over several years (by following IRS depreciation tables) rather than deducted in the year paid.” This is because improvements are an addition to the value of the property rather than a repair of an existing structure, like fixing a leaky sink.
