Around 36% of American households rent the places they live. If you're a real estate investor, this is probably good news. Over one-third of people rent, and some of these individuals might rent from you.
As a real estate investor, you'll need to make sure you handle your rental property accounting accurately. After all, handling it correctly can help you pay lower taxes.
Here is a guide to help you learn some of the basic principles of rental property accounting.
Track Your Income
Rental accounting is not overly difficult, as it has two main parts. The first part is the income. All the money you receive from rental income is your revenue.
You'll have to report all this on your taxes as rental income, and you can record it in your chart of accounts for rental business as revenue. Each time you receive money, it increases this revenue account.
You probably won't have any other form of income to record for your business, as this is the only revenue that most rental property owners have.
Write Off All Your Expenses
The other part of your rental accounting is your expenses. Your expenses offset your income, but you'll have to keep track of them individually by category.
You can set up your chart of accounts to reflect all the accounts you use for your expenses. For example, you might have a utility expense account, an insurance expense account, and legal fee expense.
If you hire a property management firm for services, you can reap a lot of benefits. You can also write off the fees you pay them as an expense of your business.
While your expenses cost money out of your pocket, they also reduce your taxable income. You should aim to write off as many expenses as you can to bring your income down.
Use Rental Property Accounting Software
Most rental property owners use rental accounting software to track their accounting. When you use software, you can set up the chart of accounts for a rental property to suit your exact needs.
Each time you receive money from rental income, you can enter it in the system. Each time you pay a bill or expense, you can also enter it into the system.
At the end of each month, quarter, or year, you can run reports to see how much income you have for that period. You can also run reports to see your expenses.
Running reports like this can help you determine where you stand for tax purposes, which can help you plan properly for paying taxes.
Hire Us for Help
Hiring a property management company is beneficial for many reasons, as these companies can handle every duty required with rental properties. They'll even handle the rental property accounting for you.
If you're ready to learn more about property management services, contact us at Wilkinson Property Management. We can answer your questions and help you increase your profits from your rental properties.