Property owners get into real estate for various reasons, but never for accounting. Even with accounting skills, the whole point of being a property owner is to diversify your portfolio and make passive income.
Although rental property accounting is necessary, you don't have to handle it alone. Irvine, California landlords can outsource this task to property managers.
If you are still debating on whether to handle accounting yourself, check out these tips:
Don't Mix Your Accounts
Rental property accounting requires separate bank accounts. Rather than using your personal account, open a business bank account.
This separate bank account will be for all of your business transactions, including rental property income and expenses. A business bank account will protect you from tax liability and can help when it's time for rental property tax season.
If you get audited by the IRS, they will have to shuffle through your personal expenses to find the business transactions. Plus, separate accounts just make everything easier. Opening a business account is a no-brainer.
Find the Right Accounting Software
Rental property accounting software is the modern way of doing things. Manually tracking payments and expenses is outdated. Manual tracking is the quickest way to inaccurate records.
Cloud-based accounting software is ideal because you can track your finances from anywhere. Some software programs come with rental property accounting apps to allow you to update your books in real-time.
At a basic level, you'll need to find software that tracks income and expenses based on the property and each unit. Bank feed reconciliation and receipt storage are also important. Lastly, find a program that generates automated reports.
If you hire a property manager, they should have a reputable software program that they're already familiar with. A property manager removes the need for a rental property accountant.
Categorize Expenses
Rental property expenses tend to be consistent. This makes it easier to regularly track and categorize expenses.
Updating your accounts often means less work to do in the long run. Plus, your accounts will be more accurate when you regularly check them.
There are pre-defined property expense categories from the IRS that you can use, such as:
- Advertising
- Cleaning and maintenance
- Legal and professional fees
- Repairs
- Depreciation expenses
There are others you can find on the Form 1040 Schedule E. Categorizing your expenses with these terms makes it easy to do your taxes at the end of the year.
Keep in mind that you will have to report your income too. Although rental income is going to be your top form of income, security deposits, pet fees, and more must be reported.
Rental Property Accounting Tips for Irvine Landlords
Irvine, California landlords need to know the basics of rental property accounting. Even if you prefer to be a hands-off landlord, it's important to follow these tips or make sure your property manager does.
Speaking of, our property management team is here to help! PMI Orange County is a full-service real estate asset management company providing professional property management services.
For over 20 years, we've offered comprehensive financial reporting, helping you keep tabs on your investment. We will track income and expenses for you through accurate reporting. Contact us today to get started.
