Taxes: Record Keeping

I love tax season.

No, I’m not sadistic nor am I certifiably crazy. Tax season means one thing: tax refund. Who doesn’t like that?

Let me state that when you have investment property, you should also have a tax professional prepare your taxes. My guy costs $300.

The return on this, usually between $4,000 and $5,000, is well worth it.

Preparing for tax season need not be complicated. I’m going to present you with my system, which has served me well over the years. Relax: no expensive software to buy nor is this a sales pitch. Actually this entire system is free. Maybe 5 minutes of your time each month.

Spreadsheets

Google offers users free access to their online spreadsheet program. This has been my best weapon at organizing all these expenses. As we all know, each spreadsheet is broken down into tabs. Each tab can be used for a single property.

The first section: Rent. Each month, I track when the check arrived and which unit paid. Since I keep a photocopy of each rent check, I don’t write in check numbers. Keep it simple.

Section Section: Repairs and Maintenance. The water heater breaks or the toilet requires snaking; whatever is broken is cataloged here along with how much it cost to fix and the date. The receipt from the store or the contractor is kept in my 2015 Expense folder. And the guys who come once a week to cut your grass? That counts too. Yard maintenance is key. I use Sugar Land property management team for a few properties, their fees, yup, deductible too.

Third Section: Upgrades. Did you have the property repainted? How about installing a new screen door? Those particular items aren’t repairs and qualify as upgrades. Your accountant decides which because repairs qualify as tax deductions today. Upgrades qualify as deductions upon the sale of the property.

At the bottom of each section is the SUM function, which turns everything into one number. Print this tab and take it with you to your accountant.

Overlooked deductions

Any publication such as Barrons or Investor Daily can be a deduction. Your membership to the Landlord Association? Yep. Do you blog about real estate? Another deduction coming up!

Remember that one time, at band camp, when you had to buy a snake for the toilet? Those 15 miles you drove to Lowes counts at $0.35 per mile. That’s $5.25 and round trip, that means $11.50 you can write off. Make sure to log the date and time in your spreadsheet along with the mileage.

Your prefer Quicken to all this spreadsheet mumbo jumbo? The $70 is deductible. Now that your computer is involved, that probably gets to be depreciated as a business asset. How does that sound?

Target Number

The more money you can attribute to your investment, the more you’ll get back in your refund. The standard rule of thumb is 40 cents back on the dollar. Let’s say that with all the repairs, maintenance, and other deductions you can write off $1,000.

That means you’ll get $400 back just on that part alone. This doesn’t even consider the interest paid on the mortgage not the depreciation of the property. Your accountant can take care of that.

Oh, and the $350 I pay the accountant? Yep, that is deductible too. I’ll get roughly $140 back.

Property Taxes

Don’t forget about your property taxes too. Yup, deductible. And not only deductible, but sometimes even complete write offs.

Nancy Springer