One of the things you might not have considered when you decided to be a landlord was the effect it would have on your taxes. A lot of landlords don’t realize how much they can write off, or the right way to claim their rental income, when they first start out. Going to a CPA can be a good idea, at least for the first year or two, in order to make sure you’re handling everything correctly. You don’t want to make a mistake with the IRS, as doing so can come back to haunt you at a later date. There may also be state, city, or county taxes you have to pay, depending on where you live, so it’s always a good idea to know what the law requires of you.
Whether you do your taxes or have someone else handle them for you, save your receipts. Even if you buy something minor, if it can be applied to your business or you’re using it at your rental property, you may be able to write it off. If you’re unsure what qualifies, consulting with a CPA or tax attorney, or even calling the IRS or your local taxing authority to ask questions, can be a good idea. It’s better to err on the side of caution when dealing with the government and taxation, but there’s also no reason not to write off deductions that you can rightfully take. You don’t want to overpay because you missed important deductions or didn’t save receipts for things you bought for (or had done to) the property.
In addition to saving all your receipts, you’ll also want to keep good records of the money you take in from tenants. Rent, late fees, security deposits, and any other legitimate items your tenants pay need to be carefully logged, as you’ll want to know exactly how much money was brought in, and where it went. The more complete your records, the better off you’ll be at tax time. A lot of landlords don’t worry too much about their taxes until April rolls around, but that can mean a scramble to find everything you need and get all the papers together. It’s easy to overlook something that way, or to get a figure wrong when making an educated guess about how much was spent or brought in.
While honest mistakes can be corrected with an amended return, or handled during an audit if one occurs, it’s still much better to focus on getting your return right the first time. Then, if the IRS questions anything on it, you have the paperwork to back up what you’ve deducted and the amount of money you claimed to have made from rent and any fees you’ve collected. The better records you keep, the easier it will be for you to handle your taxes and get back to your other landlord duties. Just make sure you file on time, and that you complete returns for your state, city, and county, if required, along with your federal return.