Accounting for rental real estate is very different than accounting for other businesses. Accounting entries are more complex than simple revenue and expense entries.
We’ll take a look at some tips to make real estate accounting less stressful so you don’t end up tearing your hair out in frustration. These tips can help you streamline accounting tasks to make the job easier and less stressful.
Dedicated Bank Accounts
Dedicated bank accounts for every individual property will simplify your accounting work and make your life easier. You can easily track the expenses and income for each property instead of spending time sorting through combined records. However, although this is convenient, it is not scalable. Most property owners or managers start looking for other solutions once they reach four accounts.
At this point, you can group similar accounts together. Choosing the criteria for grouping is up to you – asset value, location, size, etc. The idea here is to organize the financial structure of your accounts.
When to Keep & When to Let Go
Save yourself stress and too much paper piling up by knowing when to let go of old papers. Keep your tax returns and tax-related documentation for three years. After this period, the IRS can’t perform an audit. However, if the IRS suspects that you have underreported your income they can challenge your return for six years after filing. If you feel that you might need to file for a deduction from a bad debt or worthless security, then you should save your tax-related documentation for seven years. Keep employee-related records for four years. Ensure that you shred your outdated records or dispose of them properly to stay safe from identity theft or fraud.
Go Digital – Put Your Phone to Good Use
According to IRS standards, any receipts over $75 must be saved. Paper receipts can be a nightmare to keep track of as they easily get lost. Go digital to declutter – in fact many recording systems are compatible with smartphones. One click of your smartphone camera and that receipt is saved and organized. How easy does that sound? – Instant documentation that you can easily locate. No tedious logging and filing. The unfortunate tendency with the manual method is that if you miss doing it once, the delay can easily snowball leading to an unmanageable pile up of receipts. Going digital with your smartphone makes logging receipts much easier and less prone to delays.
A combination of softwares such as Expensify and QuickBooks Online can help you digitally log your receipts with your smartphone.
Recurring transactions take place every month, or routinely. Their predictability enables automation. A software such as QuickBooks Online can easily set up recurring transactions. While investing in an accounting software is an expense, think of it as an investment that pays off in the long-term by saving you time and promoting efficiency. The three types of transactions that can be set up as recurring transactions are:
- Mortgage Payments
Hopefully these tips have given you a head’s up on good practices that will let you simplify your accounting tasks as much as you can. Simplify or automate such tasks to ease the stress of accounting.
If you are finding your accounting too much of a challenge and need a helping hand feel free to reach out to us.