With the end of 2022 just around the corner, it’s never too early to start preparing for tax season. Below, we discuss everything a landlord should do to prepare for their taxes:
Why types of records do you need?
There are two types of records you must have for tax purposes: a record of your rental income and expenses as well as supporting documents for them. Did your rental activity earn a taxable profit or incur a deductible loss during the past year? Rental income and expenses for each rental property you own can be summarized in your tax return using IRS Schedule E.
Supporting documents include credit card records, canceled checks and receipts. These documents help show the IRS you’re not just making numbers up. Furthermore, if you end up getting audited, it’s important to have this documentation so that you can prove all of the expenses and income that you claimed when filing your annual taxes.
Organize your documents
Whether you keep records the old-fashioned way, handwritten on paper, or with a modern method in a computer file, the IRS wants to know details regarding the money you made and the money you invested as a landlord. Some landlords rely on computer programs like Quicken or Microsoft Money to create income and expense reports, which can also be handy when it comes time to file your taxes.
What to do if you have employees
If you have employees who work for you on your properties, you should consult IRS Circular E which is also known as the Employer’s Tax Guide. It will help you know what records you need to file with the IRS at tax time. Payroll tax records, withholding records and employment tax returns are just some of the types of information that you’ll need as you’re a landlord with employees. The Employer’s Tax Guide is available online at the IRS website.
At the Law Offices of Aaron D. Cox, we are experts in property management, landlord-tenant and other aspects real estate law. If you’re in need of professional help, give us a call today at 734-287-3664 to schedule up a time to discuss your situation.