How to Strengthen Your Rental Property Bookkeeping

By Stephen L. Nelson

If you’re a real estate investor using Quicken Rental Property Manager as your accounting system, you are doing it “right.” Congratulations. Using a software tool like Quicken to do your accounting saves you time and should save you money because you’ll catch more deductions and make better decisions by using better profit and loss calculations.

However, to really boost the benefits of Quicken Rental Property Manager, consider these four easy tips and tricks:

Use a Quicken tag for each property

Be sure to use Quicken’s tags to segregate rental income and expenses by property. This means you need to set up the tags you need and then use them when you record transactions.

For example, if you’ve got a couple of single family houses you rent (one on Wetmore Avenue and one on Colby Avenue), set up use a tag like “Wetmore” for the one property’s transactions and a tag like “Colby” for the other property’s transactions.

You want to segregate income and expenses by property, by the way, because you need to report rental income, expenses and profit (or loss) by property on your annual federal and state income tax returns. (If you look at your Federal return’s Schedule E, for example, you’ll notice that each individual property’s numbers get reported in a separate column.)

Use a separate bank account for your rental business

You probably want to use a separate bank account for your rental business. Don’t combine all your personal and rental deposits and expenses in one giant mess of an account.

This isn’t a legal thing or tax thing so much but an organizational thing. If you use a separate bank account for your rental property or properties and then get religious about always running your rent income and rent expense through that bank account, you’ll find your records better organized.

If you’re using a limited liability company for your real estate investing, confer with your attorney, but you probably want a separate bank account for each LLC. A separate bank account shows you’re honoring the “separate identity” of the LLC.

Remember to get W-9s from vendors

A quick tax-related point: Remember that you now need to send 1099 forms to unincorporated vendors you use whom you pay more than $600 a year. In fact, your tax return specifically asks to you to indicate whether you’ve done this.

Accordingly, as you go through the year, be sure to get any vendors you use to fill out and return to you W-9 forms. These forms (available at the http://www.irs.gov/pub/irs-pdf/fw9.pdf) collect the information you or your poor accountant will need at year end to prepare the 1099 forms.

Stay disciplined in your bookkeeping

Not to lay a guilt trip on you, but one final point: Do stay disciplined in your bookkeeping.

Regularly enter transactions so you’re always pretty much up-to-date. Do reconcile your bank accounts each month. And then, yeah, use the profit and loss statements and the balance sheets to understand and double-check your data.

You will get more out of your accounting system if you work at it — and if you expect your accounting system to work for you.

There’s a longer discussion of how to keep your bookkeeping simple yet effective connected to the Quicken 2014 for Dummies edition. You might want to check it out, too, for more discussion of this topic.