The IRS provides 2,854 different tax forms on its website, which is more than enough to overwhelm the average American.
Most people find it difficult to do their personal taxes, let alone their business taxes if they own one. As an Indianapolis, Indiana, landlord, you'll be responsible for reporting your rental property income and expenses at the end of the year.
To keep your accounting records accurate for tax season, you need to follow these rental property accounting tips.
1. Open Separate Accounts
Opening a business bank account for your rental property is essential. Do everything you can to avoid mixing business finances with your personal affairs.
Your rental property should have a checking and savings account, plus credit cards to pay for expenses. Use your business savings account to set aside funds to pay for unexpected property expenses that may arise.
If you collect security deposits from tenants, you can choose how to store these funds, as per Indiana law. Consider opening an account for these funds or using your savings account as storage.
Security deposits don't belong to you, so it's important to keep them in a place where you won't accidentally spend the money.
Go a step further in organizing your rental property bookkeeping by opening separate bank accounts for each property you own. Keeping a bank account for each property will make it easier to track transactions and file taxes.
2. Digitize Rental Property Accounting
Tracking income and expenses manually is an outdated way of doing things.
It's recommended that landlords digitize receipts to declutter their space. You can use receipt scanning apps to digitize paper receipts. This allows you to access them online, which makes tax season much smoother.
You can organize all of your accounting records online with rental property accounting software. There are a lot of different platforms out there, so it's essential to do your research to find the one that fits your needs.
Find a program that can automate important rental property accounting tasks, including payments, withdrawals, and reminders. Implementing a tenant portal helps streamline rent payments.
Accounting software makes the process of income and expense tracking simpler. Plus, you'll be able to generate reports to get an overview of the financial health of your business.
3. Understand the Basic Tax Forms
Rental income management requires knowing the basic tax forms associated with owning a rental property. Learning about the basic forms can make your entire bookkeeping process run more smoothly.
Schedule E (Form 1040) is the most common form for reporting income or losses from real estate.
Businesses use 1099-NEC forms to report payments made to independent contractors. If you collect rent through cash or check, you'll report the income through a 1099-MISC form.
Hire Property Management in Indianapolis
Rental property accounting is no easy task for a landlord. That's why you should consider hiring a property management company in Indianapolis.
PMI Meridian Management is a full-service real estate asset management business providing professional services to landlords like you.
Our core principle is creating strong relationships with clients to help them enhance their investment. Let us take on your property, starting with accounting and reporting. Contact us today to get started.
