Before going into the details, there is a golden rule that you have to do whichever way you choose. You must KEEP your documents such as invoice, bank statement, lease, mortgage statement and even small receipts if you like to claim it in your tax return. Without the evidence, there is no way to record it in your financial record.
Choice 1 : Hire a tax accountant
It is the easiest to ask your accountant to do everything from bookkeeping to tax return but as you already know, that is the most expensive way to manage your financial aspect of your property as accountants usually charge you for a few hundred dollars per month for bookkeeping and several hundred dollars for the year end tax return. Let’s calculate how much you will pay.
- Bookkeeping : Let’s say your account says, you have only one property so the accountant will bookkeep your property for $100 / month. That is $100 x 12months = $1,200.
- Tax return : It really depends on the accountant but they usually charge around $500 ~ $700 if its only one property.
So now total cost will be about $2,000 for only one property. Of course this is the case if you want to properly manage your property month by month.
- You do not have to do any tedious work.
- Less stress (If you still stressed out, you should change your accountant….)
- Someone keep the record for you.
- You have to completely rely on someone. You will have no idea what to answer when IRS asks you even simple questions.
- You have to have a loooong meeting with your accountant and answer questions that you do not even remember what you spent that money for.
- You have not much control on completing finishing the tasks.
Choice 2 : DIY
- Bookkeeping : There are many softwares out there such as Quickbooks or Freshbooks. If you are looking for an accounting software that is focused on independent real estate investors, of course our software, Beaver will be the best choice. There are some income and expense tracking apps but I highly recommend you to use an “accounting” software. Portfolio management and accounting require different features after all. Some property management softwares have accounting feature but you have to enter information manually. The price varies from $10 to $60 per month per property.
- Tax return : Once you have the final numbers that you properly recorded, tax return is easy. Just use Turbo tax or H&R block. It depends on if you have other investments or complicated matters but if you file a plain vanilla return, it should be less than $200.
Let’s say you use a $10 per month plan on accounting software and use tax filing software for $200. The total will be $320. Not bad right?
- You have a total control of your numbers and what happened to your properties during the year.
- No more worries that if someone is doing a good job on your property management.
- You have to use your time.
- You need to keep on studying and updating the information.
- No one to blame….
Now you know pros and cons of both choices. Hiring someone is of course the easiest way to manage. You “think” they are professionals. But if you do not know anything about managing properties, you do not know if they are good accountants. I highly recommend you to study at least a little bit of basic accounting so that you can speak the same language with your accountants.