Bookkeeping for Rental Properties: What You Should Know

Investing in rental property is a great way to generate passive income. According to data from the IRS's Statistics of Income, approximately 9.6 million returns with rental property were filed in 2021 with a total of 16.7 million properties.

Practicing efficient bookkeeping methods will help you pocket the most profit from your rental property and reap the most tax benefits.

Why is rental property accounting important?

Rental property accounting is essential for several reasons:

• It helps you track your investments in each property and compare their profitability.

• It's also essential when analyzing each property's income and expenses. This accounting system will serve as a guide on how to increase revenue and strategically reduce costs. It will also serve as a timeline for paying all expenses promptly.

• Rental property accounting also enables rental property owners to create monthly financial statements to track their properties' performance. These statements will make it much easier for taxpayers to complete their returns when tax season rolls around.

What are the basic principles of rental property accounting?

No matter how many rental properties you own, there's a lot to keep up with when managing any property.

We have established the following basic principles to help you develop an efficient accounting system for your real estate investment business.

1. Separate bank accounts

In rental property accounting, you should do everything you can to ensure that your rental property business doesn't mix with your personal affairs. Separate your business and personal finances by opening separate bank accounts for each.

For your business, open separate accounts such as a checking account, a savings account, and credit cards. Business savings accounts are an excellent place to set aside future rental property expenses and security deposits.

2. Separate property accounts

As part of your rental property accounting system, you should open separate accounts for each rental property you own. If you create a bank account for each rental property, it will be much easier to track transactions by property. Income and expenses will be separated per rental property, making it easier to prepare individual financial reports by property, file taxes, and know which properties are performing well and which aren't.

3. Expense tracking

Setting up separate accounts for each rental property will make it easier to track expenses per property. You'll need a system to track the costs, whether an expense worksheet or tracking expenses through rental or property managers' accounting software such as Shoeboxed. This, too, will make it easier at tax time to see if there are areas where you need to cut back on expenses.

4. Cash vs accrual accounting method

Another critical step in setting up a rental property accounting system is choosing which accounting method to use. With the accrual method, expenses and income are recorded as they occur. The cash method records expenses and income when cash is paid or received.

Smaller businesses typically use the cash method to see the cash on hand or cash flow at any moment. In comparison, larger businesses typically use the accrual method to provide a better picture of income and expenses over longer periods. Determining which method to use depends on personal preference and what works best for your business.

5. Digitization for organization and decluttering

It's highly recommended that rental property businesses digitize receipts with rental property accounting apps. You can do this with scanning applications such as Shoeboxed. Digitization declutters your office by organizing your receipts digitally and makes it much easier to access specific receipts during tax time or audits.

6. Automate with accounting software

There are many good accounting software options for real estate investors. Automating your needs with accounting software is one way to make your rental property accounting system efficient. This type of software has many accounting features, such as automatic payments, withdrawals, and reminders.

There are other advantages to rental property accounting software as well. The software can help you track income on your rental properties, track business expenses, and generate company financial reports. Accounting software will make this process easier, less tedious, and more accurate.

7. Forecast future expenses

Using past data from rental properties to forecast future rental expenses is essential. Rental properties come with many unexpected and fluctuating expenses. Setting aside a percentage of your rental income in savings each month is necessary to cover these expenses.

8. Understand your basic tax forms

Ensure you are familiar with the applicable tax forms associated with rental properties. Learning about the primary tax forms and their use will make the bookkeeping process smoother, especially during tax time. Schedule E is one such tax form. Penalties for not filing tax forms correctly can be costly.

9. Hire a certified public accountant if needed

Real estate investors often need expertise beyond the basics of rental property accounting. Never hesitate to hire a CPA for more advice on rental property accounting basics and management. They are specialized professionals who will ensure you follow the best accounting practices and help you analyze the financial performance of your rental property.

How can you streamline the bookkeeping process for rental property?

As rental property owners, we have more than enough to do to keep up with property management and all the paperwork. That's why streamlining the bookkeeping process is essential. It will save you a significant amount of time.

Effective bookkeeping is essential for managing expenses, maximizing profits, and ensuring compliance with tax regulations. One powerful tool that can streamline this process is Shoeboxed, a digital solution that simplifies the collection and organization of rental property receipts and other documents.

Here’s how Shoeboxed can revolutionize your bookkeeping for rental properties.

What is Shoeboxed?

Shoeboxed is an expense and property management software solution that significantly optimizes bookkeeping for rental properties by digitizing and organizing receipts and documents.

What can Shoeboxed do for you as a property owner?

Shoeboxed can be used as an app and service that digitizes and organizes receipts, bills, and other documents, making it easy to keep track of rental property expenses.

Digitizes physical receipts

Shoeboxed scans and digitizes physical receipts and transforms them into stored digital files. This is especially helpful for realtors or property owners who prefer to keep their receipts organized and in one location.

Scan and upload receipts using your smartphone

Another feature that is helpful to real estate agents who are constantly on the go is Shoeboxed's mobile phone app. With the app, property managers can use their smartphone camera to take photos of all receipts, which are automatically uploaded into a Shoeboxed account.

Shoeboxed also offers a convenient web dashboard to upload receipts, contracts, invoices, and other documents from their desktop. This method is great for bulk scanning.

The Magic Envelope Service

For realtors, property managers, or owners who are on the go and don't have time to scan their receipts, Shoeboxed offers a free Magic Envelope service. Property professionals can fill this prepaid postage envelope with receipts and mail it to Shoeboxed's processing center. The receipts are scanned, human-verified, and uploaded into their account. This service is excellent for those who want to outsource their receipt management to save time for more pressing issues.

Property professionals can conveniently leave The Magic Envelope on the dashboard of their car and fill it with receipts as expenses occur, such as gas, repairs, etc.

Shoeboxed is the only receipt scanner app that will handle both your paper receipts and your digital receipts—saving customers up to 9.2 hours per week from manual data entry!

Tracks mileage

Shoeboxed tracks your location and miles whenever you start a trip and saves your route as you drive.

As you make stops at stores and client locations, you can drop pins to make tracking more precise.

At the end of a drive, click the "End Mileage Tracking" button to create a trip summary. Each summary will include the date, editable mileage, trip name, tax-deductible, and rate info.

Click "Done" to generate a receipt for your drive and view a photo of your route on the map. Shoeboxed will automatically add your trip to your account's mileage category.

Automatically categorize expenses

Shoeboxed's systematic approach to receipt categories is simple but valuable for organizing receipts. Critical information is OCR extracted from the printed text of the receipt and converted into searchable data. The data is automatically categorized into 15 tax or customized categories.

Shoeboxed has been voted as the best receipt scanner app for tax season by Hubspot and given the Trusted Vendor and Quality Choice awards by Crozdesk.

Generate expense reports

You can quickly search, edit, organize, save, and manage receipts for income and expense tracking and reporting. You can also create custom web or mobile app reports with receipts attached for reimbursements or tax purposes.

Integrates with accounting software

Shoeboxed integrates with popular accounting software like QuickBooks and Xero.

Export expenses to your accounting software in just a click so that data is consistent across platforms.

Shoeboxed integrates with 12+ apps, including QuickBooks, Xero, and Wave Accounting, to automate tedious property management tasks.

Shoeboxed demo

What are the benefits of using Shoeboxed for rental property bookkeeping?

Using Shoeboxed streamlines the rental property bookkeeping process, saving you time and money.

Easy expense tracking

Shoeboxed allows you to scan and digitize all your receipts and easily track every income and expense transaction related to your rental properties.

This is particularly useful for:

• Maintenance and repair costs

• Utility bills

• Property management fees

Time-saving automation

By automatically categorizing expenses, Shoeboxed saves you the time and hassle of manually entering data. You can focus more on managing your properties and less on bookkeeping.

Accurate financial records

With Shoeboxed, you can track rent payments and generate detailed expense reports with just a few clicks. These reports provide an accurate overview of your financials, helping you make informed decisions about your rental properties.

Seamless integration

Shoeboxed integrates seamlessly with accounting software like QuickBooks, making it easy to sync your digitized receipts with your financial records. This integration ensures that your bookkeeping is always up-to-date, accurate, and in one place.

How can you get started with Shoeboxed?

Incorporating Shoeboxed into your rental property bookkeeping is a straightforward process.

Getting started is simple:

1. Sign up: Create an account on Shoeboxed’s website.

2. Download the app: Install the Shoeboxed app on your smartphone.

3. Scan receipts: Start scanning your receipts and documents using the app.

4. Categorize expenses: Let Shoeboxed automatically categorize your expenses or manually adjust categories as needed.

5. Generate reports: Use Shoeboxed to generate expense reports and sync with your accounting software.

What are the different types of rental property income and expenses?

There are different types of rental income and expenses.

Rental income consists of the following:

• rent payments

• late rent fees

• pet fees

• termination fees

• appliance rental fees

Just as there are many different types of rental income, there are also many kinds of expenses.

These expenses include the following:

• repairs

• routine maintenance

• landscaping

• utilities

• marketing tools

• property management fees

• attorney fees

• accountant fees

• mortgage

• property tax

• insurance

Frequently asked questions

How can I efficiently track expenses for my rental properties?

Efficiently tracking expenses for your rental properties is essential for maintaining accurate financial records and maximizing profits.

Here are some tips:

1. Use a dedicated bookkeeping system: Software specifically designed for rental property management, such as QuickBooks or Xero, can integrate with services like Shoeboxed for seamless expense tracking.

2. Digitize your receipts: Use apps like Shoeboxed to scan and organize receipts and invoices. This will save you time and reduce the risk of losing essential documents.

3. Categorize expenses: Regularly categorize expenses into specific groups, such as maintenance, utilities, and property management fees. This helps in generating detailed financial reports and simplifies tax preparation.

4. Regular updates: Update your records regularly to avoid last-minute hassles. Set aside time each week to review and enter expenses.

What are the best practices for managing rental property income and expenses?

Managing rental property income and expenses effectively involves several best practices:

1. Separate accounts: Maintain separate bank accounts and credit cards for your rental properties to avoid mixing personal and business expenses.

2. Automate payments: Set up automatic payments for recurring expenses like mortgages, insurance, and utilities. This ensures timely payments and reduces the risk of late fees.

3. Keep detailed records: Keep detailed records of all income and expenses, including receipts, invoices, and lease agreements. Tools like Shoeboxed can simplify this process by digitizing and organizing your documents.

4. Monitor cash flow: Regularly review your cash flow to ensure you have sufficient funds to cover expenses and identify any early financial issues.

5. Consult a professional: Work with a qualified accountant or bookkeeper specializing in rental properties to ensure compliance with tax laws and get expert advice on financial management.

In conclusion

An efficient rental property accounting system has many benefits. It saves valuable time, accurately forecasts future expenses, tracks the financial flow of each rental property, is a valuable resource at tax time, and serves as a guideline to maximize income and minimize costs.

Incorporating Shoeboxed into your bookkeeping routine can save time, reduce errors, and give you better insights into your expenses. Whether you manage a single property or an extensive portfolio, Shoeboxed can help you streamline your bookkeeping and stay on top of your financial game.

Caryl Ramsey has years of experience assisting in bookkeeping, taxes, and customer service. She uses various other accounting systems and software to set up client information, reconcile accounts, code expenses, run financial reports, and prepare tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.

About Shoeboxed!

Shoeboxed is a receipt scanning service with receipt management software that supports multiple receipt capture methods: send, scan, upload, forward, and more!

You can stuff your receipts into one of our Magic Envelopes (prepaid postage within the US). Use our receipt tracker + receipt scanner app (iPhone, iPad, and Android) to snap a picture while on the go—auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.

Turn your receipts into data and deductibles with our expense reports, including IRS-accepted receipt images.

Join over 1 million businesses scanning & organizing receipts, creating expense reports, and more—with Shoeboxed.

Try Shoeboxed today!