As a landlord, you constantly have to deal with numbers. Between receiving your monthly rent payments, there are many expenses that you need to pay for to keep your business running. Some of these expenses include; municipal mandated property taxes, independent contractors, utility bills, and more. Without an accurate idea of how much you spend, you could wind up renting your property at a loss or barely breaking even when the goal is to make profits. Learning how to track your expenditure is one of the quick ways to get your business running more smoothly.
In this article, we’ll be diving into the nitty-gritty of tracking rental property expenses, highlighting why it’s crucial for your business, identifying which records you should monitor, and more.
Let’s get started.
Know why you need to Track your Rental Property Expenses
Completing a task is always more seamless when you understand its necessity. You’re likely to approach tracking your rental expenses with more diligence if you know how it can make your life as a landlord better and more convenient.
There are many reasons to track your rental property expenses. Here are some of them:
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It Makes filing your Taxes more Seamless
The main benefit of keeping detailed and accurate records of your spending boils down to your taxes. No one particularly enjoys filing their taxes, especially since it’s a bit more complicated for business tax. But keeping well-organized accounts can save you a great deal of trouble and make the process a lot smoother.
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It gives you a more Accurate Value on your Deductions
Apart from speeding up the process, tracking your expenses helps you keep tabs on your deductions. Property taxes, employee fees, maintenance costs, and others are deductible expenses you can legally file. For example, rather than guessing your deductibles should be around $1000, from your records, you can identify that you spent $550 on cleaning services, paid a contractor $600 for a small rewiring job, and your property tax $120. That’s a total of $1270.
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It Makes Getting tax Returns Easier.
Detailed records also make it easier for you to back up your tax return claims and get a faster refund from the IRS. Without substantial proof to back up your claim, you could be facing a fine for erroneous claims when the reality is that you’re simply not great at keeping tabs on your expenses.
Knowing these advantages will help you tackle the task head-on with a zealous spirit.
Identify which Records you Need to Keep Track
When it comes to rental property expenses, there are many receipts, contracts, and records to track. You might be wondering which of these documents you should keep and which you can ignore. But it’s in your best interest to mind all of them.
Here are some of the most important documents you need to file:
Tenant Leases
You need to save a copy of your landlord-tenant agreement, which stipulates how much rent occupants need to pay, how often, details about the security deposit, and the format of deductions. It would be best if you also kept previous tenant leases of prior occupants or current ones in the event of an update.
Tenant Communications
Don’t delete your old messages with a tenant in haste, especially if they revolve around finances. You might discuss sensitive topics like an extension on rent or an agreement to split the cost of a repair, in which case you need evidence that corroborates your story. Although it’s better to have a written statement, you can make do by saving your emails and screenshots of text messages.
Limited Liability Company Records
It’s not uncommon for property owners to set up a limited liability company, also known as an LLC, to mitigate the risk of being a landlord. You’ll want to keep all these records straight when preparing your financial statements.
Home Insurance and Warranty Policies
Home insurance is a policy that protects your house from unforeseen events, while a home warranty policy provides coverage for the repair or replacement of large appliances in your house. These documents are essential in filing your claim in the event of a mishap.
Previous Taxes
Dealing with the IRS can be a hassle, so it’s best to keep a record of your previous taxes. It makes it easier when you’re trying to get a return or if you’re ever under investigation.
Other Legal Documents
include court summons, court-ruled fines, inspection reports, etc.
In case you’re overwhelmed by the mountain load of documents you have to track, you can:
Hire an Accountant
An accountant makes your job easier by keeping well-organized and accurate records of your spendings.
Use an Online Accounting Software
You can use online accounting software that automatically catalogs your expenditure and makes tracking your expenses more manageable. For instance, you can search for the bill a plumber sent you several months ago to help you with your negotiations in the present or to file a tax return.
Use Cloud Software
Filing physical copies away can get tedious fast, and they’re more susceptible to damage. A flood or fire could destroy all your records, so to avoid your meticulous efforts going to waste, backup your documents to the cloud. Google Drive, OneDrive, Dropbox, and others are examples of cloud services that, like you, store digital copies of all your records. Apart from serving as backup, they also give you access to your documents on any connected device.
Conclusion
As tedious as tracking your rental expenses can be, keeping your business in the profit margins makes it a necessity. It speeds up the tax filing process, provides evidence when making tax return claims, and makes your deductibles more accurate. Track all your spendings using a system that works for you, be it manually logging expenses or adopting digitized receipts.
Savvy investors know that they can also rely on the aid of a responsible property management company to assist them in monitoring and estimating their rental maintenance expenses, amongst other roles.
