Log In Sign Up
Home Blog Real Estate Rookie Podcast

Rookie Reply: Time-Saving Real Estate Accounting Tips for New Investors

Real Estate Rookie Podcast
6 min read
Rookie Reply: Time-Saving Real Estate Accounting Tips for New Investors

This week’s question comes from Aaron on the Real Estate Rookie Facebook Group. Aaron is asking: How do you set up your rental income for tax season? Do you just show your accountant, for example, a Stessa report? Do you give receipts to your tenant when they pay so you have one for tax season?

Navigating the world of real estate accounting can be tricky. Do you write everything down by hand or update your numbers in tax software? Ask two real estate experts like Ashley and Tony and you’ll see that there’s usually one clear way to gather up your rental income so your CPA doesn’t have a mountain of paperwork and an avalanche of questions to ask you.

Here are some suggestions:

  • Use software like Stessa or QuickBooks to easily track your income/expenses for tax time
  • Send tenants rent receipts (if they ask for them) using software like Apartments.com and RentRedi
  • Keep clear records of how much you received in rent, spent on maintenance, and any amount of vacancy
  • Get your bookkeeping in place from the first property onwards (your future self will thank you)
  • And more in the episode…

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is Real Estate Rookie episode 208. I’m Ashley at Welcome Rentals, and he’s Tony at Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week for 200 whole episodes, we’ve been bringing you the inspiration, information and education you need to kickstart your real estate investing career. And today, we’ve got another amazing question from someone in our rookie community. This question also comes from the Real Estate Rookie Facebook group, which by the way, if you have not yet joined, it is the most active, the most engaged real estate investing Facebook group out there geared specifically towards investors, rookie investors. And literally, every time I go into that group and I see a question that’s been asked, there’s already 30 answers of people giving really detailed, helpful information. If you haven’t joined, make sure you join.

Tony:
Today’s question comes from Aaron Pope Kamanati, and Aaron’s question is, “I was just curious how you set up your rent income for tax season. Do you just show your example your assessor report? Or do you give receipts to your tenant when they pay it so you have one for tax season? Just looking to see how people set up that part of their books. Thanks.” Ash, what are your thoughts on the taxes?

Ashley:
Well, in my old life, I worked at a CPA firm as an accountant, a staff accountant. Attempted to become a CPA. I only took one test, and then I was like, I hate this, and quit my job and never looked back. But I did learn how to do excellent bookkeeping. And even though I dread it and hate it now and it’s so mundane to me, it is very important to keep accurate books.

Ashley:
If you don’t know a ton about bookkeeping, I think Stessa, that Aaron had mentioned, that software is a great way to get started. It’s free and it’s very specific to real estate investors. Especially great for if you have buy and hold. Tony used it for a little while with short term rentals too. And I’m not sure how it would work for flippers, but definitely great resource for buy and hold.

Ashley:
When you’re using any software, there’s also QuickBooks, all different kinds of places that you can do your bookkeeping, you are able to print off reports. Aaron had mentioned, do you just show the rent income on your report? Do you have to provide receipts to your tenants? Some tenants may require… or not require but ask for a receipt that they paid rent. If you are using some online platform Rent Ready or apartments.com to collect rent, there will be an electronic… What’s the word I’m looking for? Not a receipt, but a electronic record, I guess, of the transaction to show that you receive that income. You don’t have to give your tenants a receipt so that you can show that they paid for tax season because think about it; when you go into the store and Tony’s buying something from me and I hand them a receipt, that receipt doesn’t really end up anything that I need when I do my taxes.

Ashley:
The best way is to have them pay online, or every time that they do pay, enter it into your bookkeeping software. And then at the end of the year, you are going to take a report, most likely your profit and loss statement and then also your balance sheet, which shows the cash you have available in your checking account for the business, it shows what properties you have on there, and it shows any liabilities you have such as mortgages. And you’re going to take your profit and loss statement with all of the income you collected and then also any expenses you paid out of the business for your properties, and that is what you are going to give to your accountant who is doing your taxes or your CPA.

Ashley:
Very important to keep receipts of your expenses, though. That is the big thing. When you are audited, they’re going to go through and look to make sure that you are not collecting more income that you’re not reporting. And then they’re going to make sure that you’re not paying too many expenses that aren’t actually business expenses.

Ashley:
The way to do that is to… If you have income coming in and you can show, okay, I have one unit who rents $1,000 a month. I have shown you that every single month I receive that income, it shows $1,000 on my tax return, it’s going to show I collect a $12,000 a month in rent. And your lease agreement shows that the rent is $1,000 a month. Having that, that’s your proof to the IRS if they come and audit you is I have a lease right here that says I get paid $1,000 a month. My books show that I paid $12,000 a month. That right there is your checks and balances.

Ashley:
If somebody moves out and you have months vacant, well, just keep a record of that. You can show that this person moved out, gave notice on May 30th that they were moving out, and then you have a new lease showing that somebody moved in July 1st and that’s why you have a decrease in income that year compared to another year. That would be the best checks and balances.

Ashley:
And then for your expenses, save your receipts. A lot of this software, like Stessa, you can upload it directly into the software so it connects when you enter in that expense, it’s saved right with it. But I would also keep another, whether you keep paper copies in a folder or save them into Google Drive, One Drive, something like that too, just because that software, especially QuickBooks, other ones, they make it really hard to documents out of that software again when you decide you don’t want to use them and you want to switch to something else. I would keep a separate folder, whether that’s digital or in a filing cabinet of all of that paper.

Tony:
Yeah, Ash, that’s a world class breakdown on how to handle taxes. I think the only thing that I’d add to that for you, Aaron, is get your bookkeeping process in place as soon as you close on that first property because if you wait until you’re at property five to really try and figure it out, it is going to be a mess come tax season. And ask me how I know. We scaled really fast in 2021, our bookkeeping process was not the best, as we’re adding in all these properties and there’s so many transactions on a short term rental as compared to a long term rental, so we have hundreds of transactions per property every single month. And when we went to go do our taxes for 2021, I literally for months, or for several weeks had to meet with my bookkeeper for hours at a time going back to, “Hey Tony, there was this charge from January 12th. It was $473. What was that?” How am I supposed to remember a year later what this charge from January was? If you can get your systems and processes in place with the first property, that is going to be a complete lifesaver as you start to scale from one to five to 10 to even more than that.

Ashley:
Yeah. And whether you’re doing it yourself or using a bookkeeper, getting that process, okay, every month doing a bank reconciliation, entering everything every month and then moving on. Yeah, because where Tony mentioned going back to April 21st, what’s this charge? Okay, I have to log into my Amazon account, now go through six months of-

Tony:
All these transactions.

Ashley:
… Amazon purchases. Man, those are long pages to go through and try to figure out, okay, what was that expense? Okay, here it is, here’s receipt and… Yeah.

Ashley:
Well, thank you guys so much for joining us. Hopefully you learned a little bit about bookkeeping and hopefully you are going to get your books in order if you haven’t already for this year. I’m Ashley at Welcome Rentals, and he’s Tony at Tony J. Robinson, and thank you guys so much for listening.

 

Watch the Podcast Here

Links from the Show

Connect with Ashley and Tony:

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.