Tax season can be a stressful time for landlords and property managers. Between gathering data, organizing analytics, locating the right forms, and brushing up on the tax code, preparing for tax season as a rental property owner can be highly demanding.
Thankfully, tax preparation need not be as tedious as it used to be. With a best property management software tool, you already have an advantage when it comes to taxes.
Property management software’s many features reduce the time it takes to prepare your tax documents. It also reduces personal stress and risk-taking with legal liability. The software also decreases your chances of making mistakes and getting audited.
While you should always see a tax attorney for professional legal advice, understanding the digital resources available for tax preparation can benefit you tremendously.
Here are a few ways property management software streamlines your taxes.
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Key Performance Indicators (KPIs)
Key Performance Indicators are analytics automatically generated by your property management software. These metrics help you make decisions about your business and include financial stats, occupancy/vacancy rates, lead conversion rates, and more.
KPIs are also helpful during tax season because they help you spot any issues before you file. Typos, missing digits, or incorrect address/ID information can lead to weeks of trouble and possible penalties or fees. It’s easy to make mistakes when you’re entering data manually or performing calculations by hand.
Instead, use the financial reporting tools already available on your property management software and instantly locate and fix errors before they cost you.
Tax Form Auto-Generation
Many property management software platforms also offer advanced accounting tools that can autogenerate tax forms.
For instance, AppFolio autogenerates 1099 forms, which you can send to owners electronically on the platform. The platform also supports the 1099-NEC form for reporting vendor earnings.
You can also use some platforms to generate Schedule E forms to report your rental income and losses.
Rental expenses throughout the year vary from regular maintenance to repairs, improvements, and employee compensation. With property management software, you can track each of these expense types and prepare to report them for tax deductions.
Most property management software platforms that offer expense tracking allow you to select any of the standard IRS categories for each expense. You can also customize your own category as you see fit. This way, when it’s time to determine which expenses qualify for which deductions, you’ll already have them classified and organized.
Some platforms also allow you to upload invoices or photos of receipts from vendors. You can then connect these documents to entries on your general accounting leger or with your maintenance management feature, which includes the details of a particular task.
This feature is especially important for proving that a rental expense was a repair, not an improvement. You should try to classify expenses as repairs whenever possible because these are fully deductible each year. A clear connection to the task details and communications makes it easier to prove that your rental activity was a repair.
Before tax season, you need to collect and organize documents and reports. Property management software automates this process.
For instance, your software automatically produces reports for vendor information, annual financials, profit/loss summaries, and pre-structured or customized reports specifically for tax preparation.
With property management software, there’s no need to manually update any payment records or financial reports. All your data is already incorporated into autogenerated reports.
Automatic Bank Reconciliation
Simple ledger mistakes can cost you hours of frustration or even fees. If you’re preparing your taxes by hand, you need to pay meticulous attention to every number and line.
Property management software streamlines your proofreading by automatically checking that your records match your bank account balances. This feature helps you catch any unusual transactions or unexpected imbalances before you file with the IRS.
Finally, if you decide to use an external tax preparation application, property management software makes it easy. You can export your financials as a .csv file to QuickBooks, Excel, or another software application to continue your tax preparation.
Simplify Your Taxes with Software
By using property management software now, you are already preparing for an easier tax season next year. Fundamental features like KPI tracking, tax form generation, expense tracking, reporting, bank reconciliation, and exportation reduce the stress of doing your taxes and give you the freedom to pursue other goals. Managing your taxes—and your business—is easier than ever.
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