Whether you’re buying investment property or tracking your rental properties, success means doing things the right way. Here are some tips for tracking multifamily and investment property expenses so that you can be sure that you are following IRS guidelines to avoid the dreaded audit.

1. Get Organized

More specifically, organize your receipts and other proof of expenses to have them on hand for tax purposes and calculate your profits. The IRS looks for people who cannot back up their expenses with proof and rejects the expense. For example, meals and entertainment deductions are often overstated on business owners' taxes. One of BiggerPockets' posts reminds landlords that vague deductions are among the top three IRS audit triggers. By keeping your receipts, you cancel any doubt that your recent working lunch was actually a business expense.

If you're unsure of what records to keep, check out this list:

  • Escrow reports, settlement statements, and inspection reports from when you first bought the property.

  • Tenant-related files such as commissions paid, renovation requests and repairs made, and any late rent notices sent.

  • Tenant leases for present-day and previous tenants, including their applications and tenant screening reports.

  • Proof of rent received, the amount, and the date the rent money was initially received.

  • Copies of receipts for utility bills, material and labor, supplies, and expenses associated with owning and working the property.

  • Bank statements from the property's account to exhibit the separation of private and business expenses.

  • Expenses associated with advertising a vacant property for rent, such as online advertising and marketing fees, tenant screening reports, and training costs.

  • Invoices from experts, such as leasing agents, lawyers, property management companies, and accountants.

  • Records of income or tax paid for the rent obtained from every property and tenant.

  • Mortgage loan files and a specified report of closing costs and mortgage repayments made — along with a breakdown of principal, interest, taxes, and insurance plan (PITI).

  • Copies of local, state, and federal tax returns dating back a few years.

2. Protect Yourself and Your Employees

You can protect yourself with accounting software that offers tax penalty protection. Likewise, protecting your employees is equally important. Comprehensive software that offers advanced payroll features should also provide automatic payroll scheduling, as well as automatic calculating and tax filing and same-day direct deposit.

3. Simplify the Process

Simplify the process of tracking rental property expenses by keeping your records and receipts all in one place. One way to do this is through a spreadsheet, but a more advanced way to do this is to use software that tracks expenses. You can even use one that integrates with your resident experience management platform.

4. Integrate, Integrate, Integrate

When you integrate your expense tracking, payroll, and other business features, you make it easier to find information, cut down on duplication, reduce repetitive tasks, and more. Business accounting software can help you implement these tips into your business. You can:

  • Import bank, credit card, and other transactions to the software.

  • Auto-sort your transactions according to tax category.

  • Upload receipt photos for easy expense tracking.

  • Auto-calculate, file, and pay payroll taxes.

  • Protect your business from tax penalties due to human error.

  • Eliminate paper timesheets.

  • Work from anywhere through the cloud-based software.

  • Protect your data from malware.

In a nutshell, it will serve you well to use software that is multi-purpose and reliable. Choosing one that automates payroll and expense tracking affords you peace of mind, knowing that you will have fewer human errors—the leading cause of inaccurate reporting and security breaches. You can track your rental property expenses accurately and efficiently with expense tracking software. 

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