Who loves paperwork?
The two key benefits of keeping good records are:
1. It enables you to monitor your rentals, see whether the performance of property is improving and any changes that you may need to make. It will help you succeed in the business.
2. If nothing else, you have to report income and expenses to IRS at the end of year. If you keep good record of your expenses, you can write them off and pay taxes on true net income.
So how do you keep recordkeeping simple and effective?
1. Setup a separate bank account for your rental properties
2. Setup folders for properties in your filing cabinet. Have a separate income and expense section for properties in your folder
3. Every week or once a month setup time to enter the income and expenses in property management software application
4. Run Income-Expense report on your residential rental properties to see how are they performing
By following these 4 steps you will stay on top of your rental property income and expenses. A GAO study shows that rental property owners miss many deductions because they do not keep good records and most Schedule E‘s are incorrect. So the key benefit you will have is that you will get more tax deductions as you will be writing off more expenses. This will result in more money in y0ur pocket.