As a property management firm, you likely deal with tenants and prospects. Your responsibilities may include doing maintenance and repairs, collecting rent, marketing rentals, and responding to tenant complaints.
Accounting for property management companies is different than standard accounting. An accountant for property management companies needs to keep track of the company's finances and manage individual accounts for the properties that the company oversees.
What Is the Best Accounting Method When Doing Accounting for Property Management Companies?
When you speak to a financial adviser for property management companies, they will likely tell you that the accrual accounting method is better than the cash method in this circumstance. The accrual accounting method allows you to record transactions when they are due as opposed to when they are actually carried out. For example, your company hires a contractor who works on a building in August. That transaction is recorded in August, not in September when the invoice actually arrives.
That being said, there are some firms that use cash basis accounting. With this method, transactions are entered in the moment that money changes hands. For example, your tenants monthly rent is $2,000. They pay four months in advance, or $8,000. All of the money would be recorded as soon as the tenet paid and would not be spread out over four months.
Challenges Faced When Handling Bookkeeping for Property Management Companies
Bookkeeping for property management companies is understandably complicated. A chart of accounts is a cheat sheet of sorts that can be used to help organize different transactions. On this chart of accounts you will see every account or ledger that a transaction can be sorted into. You will know if it's an expense or if it's income.
The more detailed your chart of accounts is, the more insight you will have into your company's cash flow. While some people still opt to handle these matters manually, many see the benefit in using accounting platforms like QuickBooks Online to help get the job done.
Keeping Track of Deductible Expenses When Tax Planning for Property Management Companies
Much of the money you spend on the properties your business manages can be deducted. Some of the expenses property management business owners deduct as part of their tax planning for property management companies include:
- The cost of maintenance and repairs
- Lease cancellations costs
- Real estate taxes
- Mortgage interest
Of course, successfully keeping track of your deductions means that you would need to have good bookkeeping for property management companies. The IRS requires that your business has all of the essential records for at least three years. You will need to keep records for seven years if what you are deducting is the cost of bad debt or worthless securities.
Expenses that are under $75 and that are connected to food, lodging, or transportation may not require a receipt. However, a good property management company accountant can keep record of these details for you.
Getting The Assistance You Need
Here at Fusion CPA, we provide financial advisory to property management companies. We help small help property management companies, like yours, understand their tax responsibilities, bookkeeping, and best practices for accounting. We can assist you in navigating your business processes and help improve your overall business strategy. We are here to help. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
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