For vacation rental owners, the amount of rental paperwork can be hefty. As tax time draws near, the folders brimming with receipts and hard drives full of spreadsheets can be a daunting task to tackle.
Tax season is a great time to evaluate your processes for tracking your rental business expenses and figure out ways to streamline and improve them for next year. Fortunately, there are several easy-to-use technological solutions available that will help you keep your books up to date without the hassle.
There are also several simple tips and tricks of the trade that you might not have considered that you can implement right now.
Keep it simple. Keeping track of your expenses doesn’t have to be complex. Brandon Wright, director of Marketing at Thoughtlab in Salt Lake City, Utah, says he prefers to keep it simple and only spends about 30 minutes on bookkeeping every month for his four rental units. Others advocate setting aside dedicated time each day or week to update your records. Find what works for you and set up your own routine.
Use a dedicated credit card. Wright uses a dedicated card for all of his business expenses that he pays off each month. “I know that every item purchased with this credit card is a vacation rental expense,” he says. “At the end of each month, I assign the purchases to the unit they belong to—rent, cleaning, utilities and mortgage are already calculated as they are fixed costs. I then export my revenue data and my spreadsheet does the rest.”
Sync up with the cloud. If you’re not already using a cloud-based accounting software system, such as Quickbooks Online or Xero, consider the benefits of doing so for the next tax year. “Because the software is hosted online, you can access it and record your expenses from anywhere,” says Kristen Bonkoski, co-owner of Burton Bookkeeping, a cloud-based accounting services company based in Salt Lake City. “You can link your credit card and bank account so that expenses automatically feed into your account, and when you are ready to create expense reports, that’s automated, as well.”
Maintain a paper trail. When possible, jot down relevant notes on the backs of your receipts so that you know exactly which expenses they are related to—meals and entertainment, travel, vehicle and home office expenses are among the main expense categories. If you have a receipt for a meal, write down who was present and the purpose of the meeting. This kind of paper trail is important, as it will help support your case in the event of a tax audit (credit card statements are not sufficient).
Deal with those pesky receipts. Do you have an unwieldy stack of receipts and bills? Check out a cloud-based app such as HubDoc to make your life easier, Bonkoski says. “You can take photos of paperwork with your smartphone and forward email invoices right from your inbox. This also works well if you are collaborating with an accountant or bookkeeper, as they can access your bills and receipts without having to pick up a shoebox from your office.”
Link to an expense tracking application. There are several great tools available for tracking expenses and categories effortlessly. Mint and Billguard are two examples. “If you link up your expense card with these apps, all of your purchasing data will be instantly available on your phone and can be accessed from anywhere,” says Sacha Ferrandi, founder of Source Capital Funding Inc., a real estate investing firm in San Diego, California.
Set up recurring purchases. Organize your expenses and plan out your spending through recurring payments on sites like Amazon and Jet. “If you leverage these services and set up purchases at the beginning of each month, you will know exactly how much you will spend each month before the year even starts,” says Ferrandi.
Don’t forget about contractors. “Remember that if you are paying a contractor to do work on your rental, if the cost is more than $600, you will owe them a 1099 at the end of the year,” says Bonkoski. “This is easily managed in Quickbooks Online. Not only can you track how much you paid each contractor, you can also prepare and file your 1099s from within the software.”
Hire a good accountant. Sure, some vacation rental owners go the DIY route, but hiring a professional accountant who is familiar with the laws related to the vacation rental industry and related expenses will save you time and money. You’ll still need to keep good records of your expenses, however, to make the best use of your time with your accountant.