Being a landlord is a huge responsibility, and duties go beyond simply dealing with tenants and the physical space they occupy. In addition, landlords are in charge of managing the finances of the spaces they own, and handling taxes for their properties at the end of the fiscal year. If you're a landlord, it's essential to track expenses for your properties during the year so you know what was spent on the property and what you can declare and deduct from your taxes annually. If you need help with how to best track your expenses as a landlord, check out the list below.
1. Keep track of ordinary and necessary expenses.
In order to deduct expenses from your tax return at the end of the year, the expenses must be ordinary and necessary in your line of business. This means that spending money to add in a fancy new appliance or to renovate is not considered a deduction you can take outright. Things to include on your list of expenses and deductions include necessary repairs to existing appliances or fixtures, software to keep track of business expenses, and changed locks.
2. Use expense tracking software.
It will pay off in the long run to invest in software that will help you track your expenses during the year. Expense tracking software keeps all of your numbers and receipts in one place, so you don't have to spend a lot of time collecting documents and adding numbers at tax time. One of the best expense tracking software to choose is Expensify, which allows users to take pictures of receipts so they don't have to save a ton of paper, as well as SmartCategorization features, which links to your bank account and credit cards and sorts the expenditures you make into categories, so you can see how you're using your money.
3. Report depreciation of improvements.
The money put into a rental property for non-necessary or ordinary expenses is considered to be spent on improvements. This includes things like adding a pool or installing a home automation system. You cannot deduct the amount you spend on improvements from your taxes, but you can report depreciation of the improvements for a smaller deduction. So, you should keep track of how much you spend on any improvements. The IRS provides Form 4562 for landlords to fill out, which allows you to calculate the amount you can deduct for an improvement's depreciation.
4. Keep track of travel expenses.
When tracking your business expenses for a year, you shouldn't only keep track of the money you spend on your property. You should also keep track of any expenses due to travel that you had to do for work (excluding your commute to and from your office). If you had to take a long drive across town to pick up a new fixture or meet with a contractor, or, if you had to spend a lot of time driving to and from properties, you can deduct any costs associated with those travels from your taxes at the end of the year. That includes any money you spent on gas during the travel, or the cost of any other kind of transportation tickets you had to use to get around. Use an expense tracking software to take photos of receipts for your purchases, so you know how much you spent at the end of a year.
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