Selling, buying, and overseeing properties in Salt Lake City -- that's what you call fun as a real estate investor. Managing your financial books and taxes? Not so much.
You're not alone in this feeling. An increasing number of business owners have chosen to outsource their accounting and financial planning functions during the past 10 years so that they no longer have to handle them on their own.
Nevertheless, it's important for all real estate investors to have some property accounting knowledge. Here are three of the most useful property accounting tips for real estate investors.
Let's dig in!
1. Know Relevant Federal and State Regulations
One of the most important parts of being a real estate investor is learning the local, state, and federal regulations that impact how you manage your finances.
State and local agencies, like real estate commissions, determine best practices for property accounting. So, before you handle your property investments' books, you need to read up on their regulations. This will help you to stay compliant.
An expert in real estate taxes can explain the relevant regulations to you if you don't have much time to focus on this aspect of your business. They'll also keep you updated on changing tax-related regulations and handle your books for you.
2. Choose One of Two Accounting Methods
As a real estate investor, you have a couple of Internal Revenue Service accounting method options to consider. One is the accrual method, and the other is the cash-basis method.
The cash-basis approach recognizes expenses and income when they occur. Meanwhile, the accrual approach recognizes them when they're invoiced.
A tax specialist can assist you in determining which method might be best for you in real estate.
3. Separate Personal and Business Accounting
Finally, you should separate your personal and business bank accounts. If you don't have separate accounts, you may struggle to tell the difference between personal expenses and business expenses.
Having separate accounts will make your tax preparation process less complicated. After all, you'll be more organized. It will also make it easier to produce financial statements.
With a separate business account, you'll also be able to see your business's cash position at a glance. This will help you to make more informed decisions about your future financial direction.
Finally, keeping your personal and business finances separate will safeguard your personal funds from business-related lawsuits.
How We Can Help with Property Accounting
The top property accounting tips include developing a strong understanding of federal and state accounting regulations. They also include choosing an appropriate accounting method for your business. You should also separate your personal and business accounts.
At Utah Property Solutions, we take pride in offering top-tier property management services in Salt Lake City. We can lighten your load as a real estate investor by helping you to find and screen tenants. We can also handle property maintenance and marketing for you.
Contact us to learn more about our services, and let's partner today!