Landlord Tips – Avoiding the Huge Costs of Tax Preparation

As a landlord, your tightest months for cash flow are usually at the end of the winter and beginning of spring, in March, April and May. You’ve just finished paying for the extra costs that winter brings; sky-high utility bills, snow and ice removal, heating issues and so on. Not only that, but any vacant units probably took longer to fill because people are less likely to move during the winter. You might even have had damage from ice dams or frozen pipes.

The end of the winter is the worst possible time to get a huge unexpected bill. And yet here it comes; hundreds or even thousands of dollars due to your {{{CPA or bookkeeper|tax advisor}}}.

Fortunately, there are ways to really reduce this bill without adding a lot to your workload. The key is to organize your tax documents in a way that will let your tax advisor (or yourself, if you do your own business taxes) prepare your return in a lot less time.

I use property management software to organize all of my income, expenses and assets, and make sure that my bank account statements match up with my own personal accounting. It’s faster than maintaining my records in Excel, and it only takes a little longer than the method used by lots of old-school landlords; stuffing all their records into a shoe box and hoping for the best.

Because you’ve organized your land lording income and expenses in your property management software as they occur throughout the year, they are completely organized and ready for you at the end of the year, at tax prep time. Somebody’s going to be doing a lot less work then – either your tax advisor (which means you pay him less) or yourself (which means you get to bed earlier).

You want your records to be organized Tax Advisors along the categories of the IRS Schedule E form, which you use to report rental property income and loss, along with income and loss from related investments such as partnerships and trusts. You’ll need to submit an IRS Schedule E along with your 1040 tax return. You’ll also take the summarized results from the Schedule E and incorporate them into your 1040 calculations. You can do all this with the correct property management software.

There are two Schedule E categories for Income and 14 for Expenses. For Income, any time you receive rents, you’ll record them in your rental property program as a deposit; thus updating both your bank account records and your ledger account records. For Expenses, any time you spend money on anything related to your properties, you’ll record those Expenses either through the check register or a journal entry. Your property management program should let you enter any Expense under a category that matches a Schedule E category; they are Advertising, Auto and Travel, Cleaning and Maintenance, Commissions, Insurance, Legal and other Professional Fees, Management Fees, Mortgage Interest, Other Interest, Repairs, Supplies, Taxes, Utilities, Other, and Depreciation. Some of these property management expense categories will make perfect sense to you, but others may need explanation.

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