Itemize Every Single Transaction
Make sure to itemize every transaction in your real estate accounting system to make things easier for you and your tax accountant . The best way to do this is to upload your receipts and fill out the memo section of your spreadsheet . It would be best to break your expenses down based on the same categories the IRS uses for the most taxfriendly categorization . These are :
• Advertising
• Auto and Travel Expenses
• Cleaning and Maintenance
• Commissions
• Insurance
• Legal and Other Professional Fees
• Management Fees
• Mortgage Interest Paid to Banks , etc .
• Other Interest
• Repairs
• Supplies
• Taxes
• Utilities
• Depreciation Expense or Depletion
• Other
These can be broken down by each month of the year to make it easy for you to track your budget . It ’ s also beneficial for tax purposes . sheet is keep all of your receipts . To make things easier on yourself when going back and categorizing each receipt , simply write a small note somewhere on the receipt to identify which property it ’ s for and the purpose of the purchase . Holding onto your receipts makes managing your books a lot easier and gives you accountability with your taxes and any IRS inquisitions .
If you try to hold onto all of your receipts , you ’ re going to end up with a very large folder . What you can do instead is download an app to store all of your receipts . Apps like Expensify will take a photo of your receipt and store it for you . You can pull your receipt at any time on the app without having to store hundreds of receipts in your office . They will also be easier to find since you can search by date instead of digging through piles of receipts .
Separate Expenses
To stay out of trouble with your taxes and the IRS , you need to separate your personal expenses from your business expenses . If you have not already , you should set up a separate bank account , savings account , and credit card for your business that is entirely separate from your personal accounts and cards . Even if you aren ’ t intentionally illegally mixing finances , you could find yourself in trouble if everything is under one account . It ’ s not worth the risk to keep everything combined . Before even starting your real estate accounting system , get everything separated immediately .
Reconcile with Your Bank and Credit Cards
One of the biggest reasons to use a real estate accounting system is to make sure no unapproved transactions occur . By diligently updating your accounting sheet or software , you should easily know every single transaction that will appear in your bank and credit card statements . Sometimes things happen , and you could accidentally be charged for something you didn ’ t buy . Pay attention to every single transaction and memo and ensure that everything lines up each month . If not , give your bank or credit card company a call and get everything resolved . Sometimes you may miss something in your statements . Don ’ t feel bad about doublechecking with these institutions ; that ’ s what they ’ re there for .
Consider Outsourcing
If everything you just read sounds pretty overwhelming , don ’ t be afraid to outsource your real estate accounting to a professional . It ’ s great if you don ’ t have to
and can save some money , but you may end up making mistakes and costing yourself even more time and money if it ’ s overwhelming . Look into hiring an accountant or outsourcing to a CPA firm , if it ’ s within your budget .
Hold onto Receipts
The best thing you can do for your taxes and your real estate accounting
If you have not already , you should set up a separate bank account , savings account , and credit card for your business that is entirely separate from your personal accounts and cards . Even if you aren ’ t intentionally illegally mixing finances , you could find yourself in trouble if everything is under one account . It ’ s not worth the risk to keep everything combined .
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