-min.jpg)
Rental businesses that commit tax-related errors can be subject to hefty IRS penalties. Depending on the error, the penalty can be as much as 20% of the underpaid tax!
That said, one of the most crucial tax tips for landlords is to conduct proper rental property accounting. As a Baltimore landlord yourself, it can help you comply with tax laws, avoid reporting errors, and prepare for possible audits.
So, how do you get started with rental real estate accounting, and how can you streamline the process? Here's how.
1. Understand What Rental Property Accounting Entails
Aside from tax compliance, accurate accounting helps you meet your property management finance goals. It lets you determine whether you're making profits, breaking even, or losing money.
It revolves around the following:
- Rental income tracking
- Separating non-rent payments (e.g., security deposits, pet management fees, etc.)
- Recording all expenses related to each property you own (e.g., maintenance and repair costs, taxes, etc.)
- Reconciling accounts
Now that you know what real estate accounting for rental properties involves, you can decide whether to do it yourself or leave it to the pros.
2. Organize and Secure Records
Keep all documents relevant to your rental business and organize them according to their purpose.
For example, you can compile lease agreements, pet policies, and tenant background checks together. You can then group property inspection reports and maintenance documents (e.g., receipts for repairs or upkeep). The next set can be for records of the money that goes in (e.g., rental payments, security deposits, pet fees, etc.).
Keep the original documents and have backup copies, too. You should also create online copies.
3. Use Accounting Software for Rental Properties
Accounting software for rental properties lets you create digital copies of your records. You can then store them on a local computer or via the cloud. For enhanced safety and security, follow the golden 3-2-1 backup rule.
Accounting software can also help by:
- Automating recurring tasks like expense tracking and rent collection
- Consolidating all financial data in a centralized system
- Organizing records, making them easier to understand
Some programs even let you integrate them with other apps, such as online tenant portals.
4. Seek Professional Guidance
With everything going on in your personal life and career, rental property accounting may not be high on your list of priorities. However, as mentioned above, it's an integral part of your business and can even put you at risk of legal tax woes.
But if you don't have the time, don't worry; you can rely on a reputable property management company. The full-service ones offer accounting, reporting, marketing, tenant screening, maintenance, and more. They can make managing your rentals in Baltimore more manageable.
PMI Bmore Metro to the Rescue
Accurate rental property accounting can shield you from IRS audits and help you track your business's financial health. However, it's time-consuming and complex for those without prior accounting knowledge.
So, instead of doing the math yourself, rely on our property managers here at PMI Bmore Metro. Our full-service real estate asset management solutions include accurate accounting and reporting. You can also count on us for marketing, tenant placement, eviction protection, free rental analysis, and more.
Get in touch with us today to learn how we can help you maximize your Baltimore rental income!
