Running a home rental service is a profitable business venture. However, it comes with some challenges. Suppose you are thinking of starting a property management company, then it is important that you know and understand these risks and challenges. One of the most common mistakes you will make as a home rental service business owner is accounting mistakes. If you are having troubles with the accounting aspect of your rental business, here are some tips that will help you avoid some of the time-consuming accounting errors that could cost you significantly.
Understand Your Income And How Expenses Can Reduce Your Tax Amount
For a lot of people, rental property taxes are more complicated than income taxes. This makes filing them difficult. To save you from making mistakes that could cost you a lot of money down the line, it is important that you do research on tax laws related to property rentals.
Your monthly rent cheque, all security deposits, all advance payments, services received in place of rent, and all extra expenses paid make up your rental income. Under normal circumstances, these incomes will get taxed similarly to other common types of income. Fortunately for you as a landlord, you are not obligated to pay tax on all the above-listed income types. This is because all expenses connected to the rental property can be deducted.
Here is a list of the allowable expenses;
- Legal fees
- Cleaning and maintenance costs
- Mortgage interest
- Marketing expenses
After considering all these expenses, some landlords usually end up not paying any taxes at all.
Be Thorough When Checking Receipts
The IRS would demand proof of all services you purchased when it’s time to do your taxes. Therefore, it is essential to keep all receipts for all expenses for your property rentals. Also, ensure that your receipts are adequately checked to avoid errors when filing your taxes. Failure to do so could land you in serious trouble when audited.
Have A Business Account
One major mistake many landlords make is using their personal bank account to run their property rental business. This is not an intelligent way to run any business. Doing this makes it hard to check and balance your financial books properly. Creating a separate account for your rental business will make it easier to track your finances and reduce the risk of making mistakes.
Ensure Accounts Are Checked Properly And Promptly
It is essential to check your accounts promptly and adequately. Many rental businesses don’t check their accounts till the end of the year. This is a mistake that could waste your time during tax filing. So you must ensure to thoroughly keep track of your accounts periodically in an organized way.
Hire A Professional To Do Your Accounting Tasks
Financial errors can be costly and can even lead to fines from the tax agency. As a landlord or a realtor, if you feel that you can’t handle your business accounting, it is best to hire a professional like an accountant or a lawyer to handle the job. A professional can effectively handle your finances or give you the necessary guidance to prevent errors, avoid fines and penalties, and save money. To learn more about property management and different ways to make money from owning a property, you can check out https://myhomespot.com/.
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