These days, there are few better ways to build a steady income than owning a rental property. Provided, of course, you pay attention to your accounting.
Unfortunately, this is something many rental property owners overlook. It's easy to see why: reconciling expenses and filing receipts can be a bit dry. Still, doing this is essential for getting the most out of your investment.
Do you want to create an accounting system that will help you scale up in the future? If so, check out these five rental property accounting tips!
Everything related to bookkeeping and accounting benefits from going digital. Using accounting software, for example, should be a given. Even something as simple as using scanning apps to digitize receipts can be a big help.
Why is digitalization so important? Well, beyond saving the planet, it helps you declutter your office and makes it easier to stay on top of invoicing. Plus, cloud-based software can keep all your data in one place.
Separate Your Accounts
Separating personal and business accounts is a big part of property management. Creating a business savings account, in particular, makes it much easier to earmark future property expenses.
The same applies to differentiating property accounts. As your business grows, it's best to open a separate account for each property you own. This data allows you to identify units that are underperforming.
Pick the Right Accounting Method
A big part of accounting for rental properties is tracking expenses. The first thing to do is to decide if you'll use the cash or accrual accounting method. This will depend on the size of your business and personal preferences.
If you prefer to record expenses as they occur, use the accrual method. Big organizations do this to get a better picture of expenses over time. If your cash flow is restricted, it's best to log expenses as they hit your account.
Automate Whenever Possible
Effective rental property accounting relies in big part on automation. After all, nobody enjoys wasting time on mundane tasks. Accounting is challenging enough as it is, so try to keep it as simple as possible.
The general rule here is that you should automate anything you can. These days, this involves everything from withdrawals to reminders. On top of freeing up your time, automation makes accounting more accurate.
Know Your Tax Forms
When it comes to how to keep track of rental property accounting, many people forget about taxes. By learning what tax forms to use for what purpose, you can make your accounting system more efficient.
For instance, you'll need W-9 and 1099 forms from anyone doing work for you. A W-9 form contains a contractor's tax ID number. A 1099 form is for any non-employees who made over $600 from your business.
Rental Property Accounting Can Be Easy
Setting up a good rental property accounting system can do wonders for your business. The earlier you do it, the more time you'll free up for other profit-making activities. The above tips will get you started!
Want to make your accounting process even easier? Outsource it to our accounting experts at PMI Wichita! Get in touch with us to learn more about our rental property accounting services.