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Five ways to help you keep accurate records

Keeping records does not have to be a nightmare. You can use simple and practical solutions to ensure that you are keeping good records. This article will explain why you should be recording your transactions so that you can follow the five best practices for making sure your records are accurate. 

Why is it important to keep detailed records? 

Keeping detailed records is one of the most basic, fundamental things every investor needs to do. Would you like to claim that $50 purchase from a local hardware? Keep the receipt. Would you like to make sure you accurately track your $100,000 rehab for your house? Keep the receipts (I’m sure there will be more than the $50 purchase). Ultimately what keeping detailed records allows you to do is to ensure your deductions are correct on your tax returns, reduce time an audit will take (in the event of an audit), and help set the tone for better recordkeeping in other parts of your real estate business (i.e. tenant files, contracts, etc.). 

Further, if you have an accountant, they will surely appreciate your attention to detail and accurate records. Depending on the accountant, they may charge you for their time on an hourly basis. As such, by not having them dig through receipts and categorizing them for you, you’re saving everyone time and yourself some dollars. 

FIve Best Practices

1. Keep all receipts and have a recordkeeping system

To claim the deductions, you should keep all the receipts in some sort of folder. For me, I just use my google drive and I keep all my receipts (supplies, utility bills, etc) in there for each month of the year. What you could do is after every purchase with a paper receipt, take a picture and upload to google drive. If you have Quickbooks or perhaps some other software, you can attach a copy of the bill/receipt and place it in for a specified transaction. If you can do the latter, that’s the easiest method and reduces the amount of paperwork or digital clutter. 

2. Keep track of receipts on a monthly basis 

If your memory is like mine, it has a hard time remembering things from a few weeks ago let alone many months ago. As such, you will want to organize and categorize your receipts on a monthly basis. That way, you won’t forget about any deductions. A perfect example of this would be a landlord driving to check in on their property. You would want to make sure you log the amount of miles you drove, the date, and the purpose for the visit. Do you really think you’re going to remember at the end of the year that you checked in on your property on March 21st? Probably not. Don’t let easy deductions slip through the cracks. 

If you just have one property, this will be easy and won’t take much time. For me, it takes approximately 30 minutes at most for my house hack. You may as well get your systems right from the get go. Otherwise, when you have more than one, it can just be utter chaos as you don’t know which property the $100 repair you just got went to. You may as well raise your standards now when you’re small rather than figuring it out as you go and putting together the proverbial parachute. 

3. Have bank and credit cards linked to software

Even if you keep track on a monthly basis, you still may forget what you purchased. For me, I use an app called Personal Capital (it is a wealth tracking app and also allows you to see your transactions. Also, there is no affiliation to myself or Straight Up Chicago Investor Podcast). There are countless other apps that you can use such as Mint. You can also keep it simple by looking at bank or credit card accounts as well for a lower tech option. 

4. Have one account for your rental properties 

Rather than using personal credit cards for your real estate business, keep separate accounts for them. That way, you can clearly see what is going in and what is going out. The alternative is that you may have several bank and credit card accounts and you can’t locate all of your expenses (therefore leading to missed deductions). All you need to remember is to keep it simple. 

5. Keep tax records for the required length of time 

I know sometimes if you have a lot of receipts or digital clutter, your natural inclination is to clean, or at least mine is. However, be advised that for the US government, you must keep information for three years after you filed your original return or two years from the date you paid the tax, whichever is later. For Illinois, you should keep them for three and a half years after you filed an original or amended return. For other states, I’d recommend researching to see just to be safe. 

Conclusion

Keeping accurate records is not as hard as it needs to be. With the above practical tips, you should be well on your way to having a sustainable recordkeeping system that’s built for multiple properties. Most importantly, you will ultimately be saving yourself some additional money by making sure you have maximized your deductions. 

If you have questions on your real estate tax strategy, you can reach me (Aaron Zimmerman) at aaronz@thethinkers.com. 

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