MM Accounting and CFO Solutions, of Cedahurst, New York, understands the ins and outs of maintaining proper real estate records. Our real estate accounting services are handled by our team of experts, with years of experience in handling real estate bookkeeping. Below is a list of helpful tips, for real estate investors interested in properly managing their taxes.
It is essential for every expense and item of income in your real estate business to be organized in a system that is efficient and accessible. The IRS will penalize those that are not organized in their business endeavors. Most small businesses utilize QuickBooks because it is the standard digital format in the accounting profession. When your business books are correctly organized you have incredible control over your operation’s accounting. Every deposit and bill must be transacted through banks accounts and credit cards for the business and recorded correctly in QuickBooks. There is no better way to get your business organized and ready for tax season than to hire an experienced Bookkeeper. Whether you prefer Outsourced Bookkeeping or On-site Bookkeeping to help grow your business, it is a wise decision to help you stay focused on the organization of your business’s finances.
Use Investments to your Advantage
There are several ways tax law is set up to benefit investing, particularly in real estate. Rental properties are fantastic in this regard, as you get to depreciate the structure of the property over the next 27.5 years. (The “As you get to” is awkward and a little conversational. Maybe change to: “For example, rental properties depreciate over a span of 27.5 years.” This depreciation can be a great way to offset any cash flow income that the property may be generating. At the same time, the real estate is likely appreciating in value without incurring any additional tax liability as a result. Once you decide to sell the property, any income earned as a result of appreciation is treated as capital gains as opposed to income tax (which is typically much higher). Typically, selling property that you have owned for more than a year can fall into this category.
Investors have the ability to capitalize on another tax savings known as a 1031 Exchange. A 1031 enables investors to defer the capital gains tax by moving profits from the sale of one property directly into the purchase of a new property. By continually deferring tax liability from the sale of properties, many investors have amassed real estate fortunes without ever having paid taxes on the gains from those properties.
Record Expenses to Proper Properties
Many expenses are easily linked to one specific property: mortgages, taxes, insurance, repairs. Record them accordingly! If you have multiple properties, make sure you are accurately recording which payments are for which properties to minimize hassle during tax season. Make sure you have logged expenses meticulously. The IRS will ask for a mileage log during an audit. Without a mileage log, you will have very hard time defending your deduction for driving. It is important to seek Professional Bookkeepers with experience dealing with Real Estate companies. Make sure to follow these tips to help make tax time less stressful and expensive.
Was this helpfuL? If so, checkout our post on useful tips to get you ready for the end of year. There you can find an overview of what’s necessary to prepare for your annual tax filings.