Tax time isn't easy for anyone. There are tons of calculations to do, forms to fill out, and money to pay to the government. However, it can be particularly challenging for a landlord. They are technically running a small business and have many expenses to track and accounts to manage. If you're a landlord who isn't looking forward to tax time this year, fear not. The following list of tips can help give you some ways to manage your finances during the year, making tax time as stress-free and easy as possible.
1. Keep track of expenses
Keep track of expenses during the fiscal year by using an expense tracking app or software like Expensify, which allows you to take pictures of receipts, categorize expenditures, and keep all your records neatly in one place. Additionally, keep track of any documents related to expenditures -- like work orders, contracts, and more -- via the document storage feature available on LandlordStation. Keeping track of money you have to spend to upkeep your properties during the year and the records for those expenditures ensures that you don't have to sort through tons of receipts and make many calculations at once during tax time.
2. Use an accountant familiar with real estate
If you're not planning to do your own taxes, use an accountant who is familiar with real estate finances. Real estate-specialized accountants are in nearly every metropolitan area across the U.S., which means you have access to a specialist who can help you understand what deductions you can and can't make and how to ensure you're declaring the proper numbers for your income. You can deduct the cost of an accountant that helps you with your business finances.
3. Enroll in direct deposit with the IRS
The IRS provides the option to have tax refunds directly deposited into your bank account. As a landlord, signing up for direct deposit is a good idea not only because the money gets to you faster, but you probably have checks and money coming in and out of your mailbox from tenants. With direct deposit, you won't get the IRS check mixed up with any other incoming money.
4. Declare depreciation in improvements
You cannot deduct the amount you spend to make non-necessary improvements in your rental property, but you can deduct the amount by which improvements depreciate. To get a tax break for improvements, fill out form 4562 available from the IRS. This ensures that you're getting back a fair amount for the money you put into making your rental property nice, attractive, and livable.
5. Deduct the costs of people who did work for you
If you had people work on your rental property - such as carpenters, electricians, maintenance workers, or painters - you can deduct the amount you paid them from your taxes. Get tax ID numbers for contractors you hire, and submit their payment amounts that are over $600 using the IRS 1099-MISC form. Get each contractor's Tax ID number, and keep it in a spreadsheet on your computer. That way, you don't have to ask for it each time you hire someone, and you won't have to spend time or energy tracking anyone down at tax time.
Being a landlord comes with a lot of fiscal responsibility, but with a little preparation and guidance, tax time can be a cinch. Doing a little work throughout the year and keeping tabs on what you spend and what portion of that you can deduct will ultimately result in the most stress-free tax season and fruitful rental year possible!
Please note: These articles are for informational purposes and we advise you to consult an accountant for more specific information related to your situation.
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