organizing your online sales finances for taxes

More and more Americans see the value of building up a secondary income through rental properties. But even the smallest landlord needs to understand good recordkeeping and accounting practices. What types of records should you be tracking carefully? Here are a few of the most overlooked items.

1. Transactions by Unit. While you may view your landlord business as a single enterprise, the IRS expects you to track activity on units individually. The income and expenses of each property — usually each freestanding building or different address — will generally be reported on IRS Schedule E individually. So keep good records of which unit(s) every transaction relates to. 

2. Reasons for Payment. All rental income — from monthly rent checks to reimbursements to security deposits — are income to the company, but they're not all treated the same. Security deposits, for instance, are liabilities rather than assets because they may need to be paid back to the tenant later. Reporting income in the wrong categories can cause unnecessary taxes or create red flags for the IRS. 

3. Personal and Business Activity. Every entrepreneur and small business owner should be diligent about separating personal and business activity. This can be a difficult habit for entrepreneurs to get into, but it's vital to protect yourself from liability and financial consequences. The best method to keep this division is to use a separate bank account and perform separate bookkeeping. 

4. Subcontractor Services. Do you use outside suppliers, local vendors, and service persons to do work for the rentals? If so, you may need to send out mandatory informational forms known as 1099 Forms. Although these are annual forms, the information needed to complete your obligation is gained via accurate records throughout the year as you do business with subcontractors. 

5. Receipts. No one likes keeping receipts, especially as the number of rentals grows. But backup documentation is vital for many reasons. It allows you to keep accurate books. It provides proof should the tax agencies have any questions. It ensures your accountant claims the most deductions possible. And it shows due diligence if you have any liability issues. So find a way to keep receipts — digitally or on paper — that works for you. 

Want more tips for which records you should be keeping better track of? Start by consulting with an accounting service in your state today. With their help and guidance, you can find methods to track all these details in ways that minimize inconvenience and ensure you have the best control over your business finances.