Accounting and Tax Prep Checklist for Property Managers

Accounting and Tax Prep Checklist for Property Managers

Filing taxes for your property management firm can be stressful. The tax code is complex and always prone to change. If you’re like most property managers, you hardly have time to handle your taxes in addition to every other aspect of running your business.That, of course, is where your accountant comes into play. However, property managers also deal with several kinds of accountants. Not all of them can do your business taxes.Below, we’ll cover the types of accountants that property managers rely on. Then, we'll dive into the tax documents your accountant needs to complete your taxes.

Staff Accounting vs. Property Accounting

Property management firms are unique in how accounting works; you must handle both your clients’ accounting and your own business’s internal books. Both teams will play a part in assembling the documentation you need for tax season.Let’s look at the key differences between each.

Property Accounting

Property accounting, also called client accounting, involves handling transactions associated with client properties.Some accounting and bookkeeping tasks here include:

  • Paying vendor bills
  • Posting rents
  • Producing and sending owner financial statements
  • Helping clients with tax and accounting questions

The property accounting team will grow as your business takes on more doors. Experienced property managers know that this is way more than simple bookkeeping, property accounting is a crucial aspect of the service you're offering your customers.At Evernest, about 80% of our accounting team is on the property side.  We recommend a mix of in-house accounting staff and outsourced services for tasks such as data entry.

Staff Accounting

Your staff accounting team, or internal accounting team, handles your company’s books, not your clients’. They perform the same types of tasks as an accountant in any other industry might. These could include:

  • Managing company books
  • Handle company cash
  • Create and analyze financial statements
  • Process payroll
  • Pay office rent and utility bills

In our experience, staff accounting teams don’t grow as fast as property accounting teams. Your business can grow a lot before needing new staff accounting team members since they only handle one business.  At Evernest, only 20% of our accounting staff are on the internal accounting side.One other thing: The work your property accountants do is part of your operations. Therefore, it flows through to your internal accounting staff. Your internal accounting staff will use what they gather to handle your tax matters. This applies if you hire an external accounting firm instead.

Documents to Gather For Tax Time

Your accountants do the heavy lifting when preparing and filing your tax returns. However, they need several documents from you to get their work done. Preparing these ahead of time will make taxes go much more quickly and painlessly.Make sure you prepare the following documentation for your tax accountant:

Relevant Personal and Business Information

Before digging up your financial documents, make sure you have documentation of your personal and business information.Personal information includes:

  • Legal name
  • Mailing address
  • Social Security number

Business information includes:

  • Business name
  • Business legal structure — Sole Proprietorship, Partnership, LLC,  S-Corporation, and C-Corporation (Business structure determines what forms your accountant needs to file)
  • Business address
  • Federal Employer Identification Number (EIN) — You may not need this if you use your Social Security number, depending on your business structure

Year-End Financial Statements

Financial statements give your accountants the financial information they need to complete most of your return. The three statements to provide them include:

  • Profit & loss statement: This shows the business' income, expenses, and profits for the year. This info is critical for figuring out the taxable income and many deductions.
  • Balance sheet: This shows the business' assets, liabilities, and any owner equity in the company.
  • Cash flow statement: This shows how well the business managed cash and may help with tax planning.

Your accounting software should be able to generate these fairly quickly.

Year-End Business Bank and Investment Account Statements

Provide your accountant with year-end statements from your business's banking and investment accounts. This helps your account cross-check revenues, expenses, profits, and cash flows to ensure everything matches.Additionally, providing this paperwork ensures your accountant has extra documentation if you ever face an audit. 

All Business Expense Documentation

Keep a physical or digital receipt for any purchase made for business purposes. Organize your receipts into the following categories for your bookkeeper.

  • Assets and equipment: Keep receipts and other documents showing assets or equipment purchases. Also, keep documentation of any financing used. Include depreciation schedules if possible.
  • Business travel: Any travel expenses, such as plane tickets, incurred for business use.
  • Insurance: Gather policy documents and year-end statements for any insurance policies you have. This will show that you have the policies and prove the amounts you paid to maintain the policies.
  • Marketing: Keep records of any advertising or marketing spend. 
  • Operations: Rent, utilities, subscription software, and similar expenses. Documentation needs vary here. Just make sure you get statements or receipts from the providers of these to have proof of your spending.
  • Professional fees: Accountants, attorneys, consultants, and any other professionals you pay to help with your business.

Documentation Proving Business Vehicle Use

Vehicles used for business purposes may qualify for tax deductions. There are two methods for deducting qualifying vehicle expenses. First is the “simplified method”. This lets you deduct an IRS-defined amount per mile driven. As a result, you have to track your mileage in a vehicle mileage log.This is relatively simple — you can use a notebook or spreadsheet software to jot down your miles. Many accounting software solutions offer mileage tracking, too.The second method, the “actual vehicle expenses method,” also uses mileage to calculate your deduction. Therefore, it also requires a mileage log. However, there’s more work involved. It lets you potentially deduct a portion of all vehicle operating expenses based on the number of miles driven for business. That means you’ll need receipts for items like:

  • Gas
  • Insurance
  • Maintenance
  • Repairs

Tax Returns From Previous Years

Tax returns from previous years help your accountant do a few things:

  • Get an idea of what deductions you could claim based on previous years
  • Carry forward any business losses as a potential tax deduction
  • Help calculate estimated tax payments for future tax planning purposes

If you’ve worked with your accountant for several years, they may already have previous tax returns. Make sure to bring that up with them if in any filing-related meetings just in case.

Potential Tax Deductions

We can’t give you tax advice. However, here are some potential deductions you can discuss with your accountant:

  • Home office expenses: If you have a home office, you may be able to reduce your taxable income. There are two methods of doing this — your accountant can help you pick the one that offers the largest potential tax savings.
  • Operational expenses: Any expenses need to perform your core operations. Examples include office rent, marketing and advertising, salaries and wages, office supplies, and utilities.
  • Interest: Interest paid on company borrowing, such as loans and corporate cards, may be tax deductible. This could make borrowing more affordable.
  • Legal and professional fees: Fees you pay to attorneys and, yes, external tax accountants may be deductible.
  • Qualified business income (QBI): The 2017 Tax Cuts and Jobs Act introduced the QBI deduction, which could potentially let you deduct up to 20% of what it defines as your qualified business income. This deduction has several rules and complexities, so talk with your accountant about this.
  • Travel: Qualifying travel expenses such as plane tickets, rental cars, meals, and accommodations may be deductible from your business taxes.
  • Vehicles: Company vehicles may offer depreciation deductions as capital assets. Furthermore, traveling in a company car may allow you to deduct mileage.

Other Tips For Tax Time

  • Brush up on financial jargon: No need to become a financial expert, but refreshing your knowledge of tax and financial terms will make tax season much less confusing. Know things like the differences between revenue and profit, gross vs. net profit, and more.
  • Keep records of everything: Get receipts for every purchase. Hold onto tax records for several years. The IRS offers guidance on how long to keep records here and here. Ask your accountant as well.
  • Ask your accountant about tax planning/projection: A good accountant can help you project your future tax liability, strategize to reduce your tax burden, and assist in collecting your documents earlier so the next tax season goes more smoothly.
  • Use the right accounting software: Invest in a robust accounting solution designed for the property management industry. Also, make sure your software lets you add your accountant as a user.

In Summary

Your property accountants are ultimately part of your operations. They impact your taxes insofar as they deliver excellent client service and boost your revenues.Meanwhile, your taxes are handled either by your internal accounting staff or an external firm.Whichever you choose, you’ll need to get a lot of documentation into their hands. The faster you prepare these, the more time your accountant has to complete your return and minimize your potential tax liability.