Did you know that there are over 33 million small business owners in the United States?
All of these people make their own income and have to report it every year. The same applies if you collect rental income as a property owner.
To do this, you have to have the appropriate tax statements and 1099s.
What mistakes are crucial to avoid? This guide goes over some of the main mistakes people make.
One of the main mistakes to avoid as a landlord is not having any records of your landlord tax. You may be someone disorganized and simply estimates what rental income you had for the year.
While you may be able to get away with this for the time being, it can majorly backfire in the future.
The main time this hurts you is if you are audited. The IRS can ask for income documents from your last three fiscal years. So, if you do not have any documents to support this from recent years, you can be subject to heavy fines.
Make sure you keep yourself organized and have documented proof of your income for tax season.
Another thing to keep in mind is when you have to pay taxes to the IRS. Two things people typically get wrong here are when to file taxes and if they are required to.
If you collect at least $600 in income during a calendar year, the IRS requires you to fill out a 1099.
Also, because you own your own business, you have to pay these taxes in quarterly statements. It happens four times per year at the end of certain months rather than taken out every paycheck like employees.
Keep in mind that these are estimated taxes for the calendar year. You could be eligible for a tax refund if this number does not end up being accurate.
However, failure to pay the proper taxes in a timely matter could result in fines from the IRS. Make sure you know what tax obligations and what payment obligations you have here.
When it comes to landlord tax, people make two common mistakes. Landlords could either write off personal expenses or not enough of their business expenses.
An example could be your property itself. You are eligible to write off a certain amount of depreciation the building has every year. This could save you a decent amount of money in taxes if done right.
Then, there is writing off too many personal expenses.
Let's say that you try to write off all of your cell phone expenses. However, you use it for both personal and business purposes. You can only write off the percentage of the expenses that you use for business in this situation.
File the Right Tax Statements and 1099s
These are just three of the mistakes you need to avoid with tax statements and 1099s. Failure to do so could cost you money and get you in trouble with the IRS.
Renters Warehouse has 16 years of property management services experience that can help you avoid situations like this. Message us here to learn more.