Thursday, November 19, 2009

Accounting Tips for Vacation Rental Owners: How to Get Organized

As we approach year end and tax filing, here's my advice as a Certified Public Accountant and a vacation rental property owner with over 12 years of rental experience.

Above all, I'd suggest that if you do a little every month. It makes filing your taxes much faster and easier at year's end. There is no need to learn how to do accounting or even pay someone to do it for you. If you can add numbers together on paper, transfer what you do to Excel, then its quick and easy. Even if you use an accountant to prepare your taxes, he/she will appreciate your help (and also charge you less) because it will be easier to work with.

Gather details
Lets start with expenses.
1) By credit card. I charge all expenses on one credit card. I have been very pleased with American Express, they have great online reporting and I earn points.

Every month I run a report from their website and export the details into one tab of an excel spreadsheet. Next I copy the expenses, paste them onto a 'scratch pad' tab, and sort the expenses (phone company, electric company, etc.) by purpose with subtotal.
Quicken Rental Property Manager 2010
2) By check. For those expenses I pay by check, I follow a similar process. Every month I download the detail from my bank account into a Quicken file (the online version is free!) , and download onto a different tab in my worksheet. I've been very happy with the $49 version I keep on my home computer. I also sort them by payee and purpose on a separate tab. I like Quicken because it is very easy to use, but if you want to manually enter information into Excel that works too. Their website even advertises a Rental Property Manager program for $149.99 (including a free will maker module.)

3) 1099. Third, my property manager sends me an annual 1099. It includes the revenue that will be reported to the IRS, and all the related expenses they deducted from my checks, for management, linens, repairs, etc. I match that to my monthly statements, then enter the summary information into its own separate tab. The nice thing about this is I can check the match so it matches what my property manager's totals are.

4) Your Bank's 1098. If you have a mortgage you can create a tab for the bank's information on your interest and taxes paid.

Your accountant does not want to see the shoebox of receipts. What they do want is a nice tidy Profit and Loss of your condo. Revenue on top, expenses by category, and a bottom line. There should be no math errors. Revenue minus your expenses should total your net profit. However save your receipts and your detail worksheets so you have them available if needed.

The cover spreadsheet IS the P&L of your vacation rental property. Revenue is in the first row, from the property manager. It should match the 1099 total, since that will be reported to the IRS.

Next are all the expenses. Each column is a different expense source. I have expenses from my credit card, expenses I paid out of my bank account, and the expenses paid by my property manager directly (reported on the 1099). I also use the bank's 1098 information for taxes and interest.

Your accountant will calculate depreciation and amortization. If you are doing your own taxes, then you need Turbotax (my personal recommendation) or another similar product.

With this simple framework, you will have a painless year end and not have to worry about year-end readiness.

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