Accounting for property management companies differs from 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.
The best accounting method for property management
When you speak to a financial adviser for accounting for property management, they will likely tell you that the accrual accounting method is better than the cash method in this circumstance. Accrual-based accounting 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 at the moment that money changes hands. For example, your tenant’s 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 tenant paid and would not be spread out over four months.
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Bookkeeping challenges for property management companies
Accounting 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, making use of accounting software like QuickBooks or Netsuite can be far more reliable in automatically generating these.
Keeping track of deductible expenses for tax planning
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 accounting for property management companies. The IRS requires that your business has all of the essential financial records. This may become overwhelming for staffers to manage, which is why it is beneficial to work with an accountant who can help to keep a record of these details for you.
See which items you track to make the most of real estate deductions
Simply send the form to your email to calculate your real estate business tax deductions
Property management accountants
Understanding the tax and accounting standards that affect property management companies is imperative to filing accurate tax returns and staying in line with IRS requirements.
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. Thus, 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!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
