Did you struggle with your tax prep this year? Tax time isn’t pleasant for anyone—especially real estate investors who have extra forms to submit. But there are ways to make filing your taxes less stressful. The REI Hub team has flagged five common issues that affect rental property owners. We’ll show you how to use tax-time pain points to improve your rental property business and simplify tax filing next year.
Missed Deductions and Credits
Nothing is more frustrating than knowing you lost out on a deduction or credit because of an error or oversight. Maybe your paperwork wasn’t in order—a missing receipt or logbook can be costly. Or you simply didn’t know about a credit that applied to you.
For example, let’s say you rented out your vacation home for part of the year. And you made energy-efficient improvements to the property, or you had a home energy audit performed. You may have qualified for certain credits as part of the Energy Efficiency Home Improvement Credit, but you didn’t know about it.
Oversights like this can cost you hundreds of dollars in forgotten deductions or credits. We don’t want you to miss out on any deductions for your rental property business. That’s why we developed tax resources geared for real estate investors like you.
REI Hub Tax Resources
- The Tax Review: This is our fast, easy way to double-check your REI Hub books and make sure you’ve caught easily missed deductions, like depreciation.
- Tax Time Double-Check: Not all deductions are payments from your bank accounts. Use our checklist to make sure you’ve accounted for noncash expenses, like escrowed property tax and insurance costs.
- Mileage Log: Traveling to and from your rental units adds up. Take advantage of the mileage deduction with our log.
- Adding Documents and Notes: Create digital notes and upload documents, images, and files as part of your REI Hub subscription, keeping everything tidy and in one place.
- Time Tracking: The time you spend working on your rental units isn’t deductible, but your logged hours help prove your status as a real estate professional. Track your hours in our log to keep your property-related information organized and easily accessible.
Mixed Accounts
Combining business and personal transactions in your accounts gets messy. If you struggled with sorting through your purchases this season, you know how much frustration and time it adds to your tax prep. Let’s avoid that hassle next year. Start by opening up designated business accounts, then get in the habit of tracking your costs separately.
If you have multiple properties, you may need to set up an account or two per property, depending on the structure of your rental business. If each property is set up as its own LLC, each LLC needs its own account.
Refer to our related article for a full discussion on the benefits of separating your business and personal accounts.
Larger Tax Payment Than Expected
Did you owe more taxes this year than you anticipated? If that’s the case, consider making three updates.
Review Your Budget
Set aside time to review and update your budget to account for changes in your business. Did you add a new property or raise the rents? Have you sold a unit? Do you expect to renovate a property over several months before putting it back up for rent? These situations all affect your budget, and without an accurate budget, it’s hard to estimate your net profit and tax liability. Reviewing your budget and financial reports regularly throughout the year will help you gauge both your spending and your tax situation.
Update Your Savings Goals
If your tax payment was a surprise this year, coming up with the funds may have been stressful. Avoid that issue next year by starting (or updating) your savings goal for this year. Set up designated savings or reserve spending accounts to make sure the funds for the next tax bill are available when you need them.
Estimated Taxes
You can also avoid paying a large tax bill in April by making estimated payments throughout the year. Estimated taxes are based on your expected income, and you’ll pay them quarterly, which helps with your cash flow.
If you expect to owe $1,000 or more when you file your return, the IRS usually requires you to file quarterly estimated taxes. If this applies to you, don’t forget about your state and local taxes—they may require estimates too, depending on where you live and operate your real estate investment business.
Penalties and Interest
Did you pay penalties or interest on your taxes this year? The IRS may assess penalties based on your estimated quarterly taxes and how long you delayed before paying them. Penalties cover every situation:
- Failure to file
- Accuracy-related issues
- Erroneous or fraudulent claims
- Failure to pay
- Installment payments
- Underpayments
And the IRS can add interest—which compounds daily—on top of the penalty. These extra fees are costly. Don’t give the IRS more money than you need to next year.
Start Early and Check In Often
Set calendar reminders, not just for filing and payment deadlines but for designated times to work on your account books, start your tax prep, or meet with your CPA. When you monitor your accounts and update your books throughout the year, tax time is less of a headache.
Starting earlier next year—or even this year—gives you more time to balance your normal workload with your tax preparations. By staying on top of your books during the year, you can hand them off to your accountant next spring without breaking a sweat. And when you expect a refund, filing faster means the return is in your account sooner.
Need some help figuring out when to set those calendar reminders? Use our accounting workflows guide as a template!
Struggles with Time or Tax Questions
Tax law and accounting are confusing, and looking for answers online can be overwhelming. If you lost time and sleep this year worrying about your books or taxes, it’s time to streamline your accounting processes.
Set up Automation
REI Hub can help you get your accounts organized and ready for next tax season, using automation and software designed for real estate investors. Manual entry of accounting tasks requires more of your time and increases the risk of introducing an error into your books. Save time and reduce your risk with REI Hub’s built-in time-saving features:
Don’t Wait
Instead of spending your time on tax forms, consider hiring a CPA for next year. You can hand off either your bookkeeping or only the tax work. Whether you want to keep your bookkeeping in-house or outsource all of it, here’s the important point to remember: Don’t wait to get tax help.
It’s far better to interview candidates this summer than it is to wait until next spring. You’ll want to have your adviser in place by the third or fourth quarter to help you with your year-end review. Getting these interviews and planning sessions out of the way this year puts you in a much stronger position for next tax season.
Takeaways
Tax time can be stressful, especially if you’ve encountered one of the five tax issues common for real estate investors. But if you notice where you’re struggling, you can use those frustrations as growth opportunities for your business. Start working on those areas now so next year filing is less painful.
REI Hub can’t simplify the tax code—but we can make bookkeeping easier for rental property owners. Sign up for a free trial today to see how REI Hub can help you get ready for next tax season!
