When you own investment properties, you have to report the funds you collect from rent as income, but luckily, you also get to deduct a lot of expenses. To ensure you keep your tax liability as low as possible, consider implementing the following tips.
1. Use an Expense Tracking App
To ensure you never miss a deduction, you may want to invest in an expense tracking app. There are all kinds of options on the market, but they all work about the same. Generally, these apps allow you to enter your expenses or snap a photo of your receipt. Then, the information gets automatically uploaded to your accounting software.
In contrast, if you just keep your receipts in a box or enter info about your expenses once a month, you risk overlooking expenses. With an app, you can easily track your expenses as soon as you incur them.
2. Track Your Mileage
In most cases, you can claim mileage or vehicle expenses as a deduction if you use your vehicle to manage your investment properties. For instance, if you drive to the property to talk with your tenants or if you drive to the bank to deposit rent checks, you may be able to deduct the mileage or expenses associated with those trips.
To track these expenses, you may want to invest in a mileage tracking app. There are apps that you just turn on when you're driving for your investment property business, and the app works in the background counting your miles.
3. Don't Forget About Interest
When you own investment properties, a lot of the deductible expenses are obvious. For instance, you can obviously deduct the cost of new carpeting or the cost of hiring someone to mow the lawn at your properties. However, some expenses are not that obvious, and one of the lesser-known deductions is interest. If you pay interest on loans related to your investment properties, you can typically claim the interest as a business deduction on your tax return.
4. Reinvest Profits
Generally, you only face tax on your profits. As indicated above, your profits consist of the revenue you collect minus your deductions. If you want to minimize your tax liability, you need to reduce your profits. To do this, consider reinvesting your profits. Depending on your situation, you may want to spend the profit improving your properties, or you may want to use the funds to buy more properties.
5. Consult an Investment Property Tax Specialist
Tax laws are complicated; if you want to make the most of your situation, you should consult with services like Anthony Gigacz & Associates Pty Ltd. Tax services can help you track expenses, identify savings options, prepare tax returns, and more.