Last modified on January 25th, 2021
By Brittany Benz
Taxes are an inevitable part of owning a property management business. While many dread this time of year, it doesn’t have to be a stressful process if your business is prepared.
Running a property management business comes with lots of complexities, which can make filing even more cumbersome. Outdated processes or paper records can lead to human errors, which can cost your business in the long run. When all of your data and documentation is quickly accessible, organized, and accurate, tax season becomes much easier.
“Each year property managers must navigate tax season — re-familiarizing themselves with processes and addressing new requirements,” says Steven Morgan, Group Product Manager at AppFolio. “Having the right technology can go a long way towards providing peace of mind that teams are adhering to requirements during annual tax season and can get their work done on time.” In other words, using the right technology can help reduce the amount of work your team has to do to prepare, and potentially reduce your liability in the event of an audit.
While this article contains helpful information, we are not providing legal advice and you should be sure to consult a qualified tax attorney for any specific questions about filing taxes for your business.
Here are some ways you can leverage technology to make this year’s tax season easier than ever:
1.) Consolidate All of Your Data in One Place
Having everything in one system allows you to access accurate data fast and efficiently, so you don’t have to spend time hunting down paperwork and manually re-checking information. From important tax documents to vendor information, robust software can automatically store and update all of your files year-round, so when tax season arrives you have everything at your fingertips. For instance, within AppFolio you can obtain documents you need to file with the IRS: a FIRE file to file electronically or paper forms to file via mail.
2.) Organize Files for Easy Processing
When you have a digital property management system, it’s even easier to gather all of the necessary files and backup documentation you need because the software automatically stores and collects information throughout the year. Here’s a helpful checklist you can follow before to make sure you’re organized making your return:
- Gather the necessary forms and instructions.
- Reconcile all bank accounts – remember to watch for unusually high or low transaction entries.
- Before you print or release any 1099 confirm the recipient’s information.
- If you are submitting less than 250 total owner and vendor 1099s to the IRS, you can submit paper copies of your 1099s and must generate a 1096 form. It’s highly recommended to print 1096s on blank paper to ensure the alignment is correct before using your purchased forms.
- Generate year-end financials including owner statements, vendor transactions, purchase orders and any other reports that your accountant needs to accurately reflect your profit/loss. You’ll also need vehicle logs, the listing of capital asset activity, and a summary of mortgage interest and property taxes paid, if applicable.
- Work with IT to establish mechanisms to enforce internal compliance.
- Check IRS.gov for the latest tax code changes – you won’t know which new deductions are available, or which credits and adjustments expired unless you look.
- Utilize the tools and functionality built into your property management software. Businesses who use comprehensive software spend less time scrubbing data, updating records and preparing documents for their accountants than those who use a combination of spreadsheets, data warehouses, and manual records.
3.) Use Analytics to Spot Anomalies in Advance
In addition to storing all of your data in one place and keeping your files organized, a comprehensive property management platform with built-in analytics and reporting tools can make it easier for you to detect inconsistencies — like an incorrect zip code or an extra digit in a social security number — which could result in an unexpected audit or penalty fees. With customized reporting and analytics, you can stay ahead of the curve and ensure your data is clean and complete.
4.) Keep Your 1099s in Line
Most property managers must issue and file 1099s by January 31st, with filing of Owner 1099s by February 28th (March 31st if filing electronically).This process can easily fall through the cracks if you’re not careful. Luckily, robust accounting software, like AppFolio can be a huge time-saver in that it can enable you to send 1099s to owners electronically instead of by mail. In addition, AppFolio also provides support for the newly added 1099-NEC form, which is now required to report on vendor earnings.
5.) Free Up Your Team to Focus on Higher-Level Initiatives
Tax season can be a disruptive task and take time away from other important business duties. Manually entering data can be tedious and lead to mistakes. With a great software system in place, your team will have more time to focus on important tasks, like staying up-to-date on the latest tax laws and researching potential deductions that could save your business money.
Set yourself up for success this tax season by making the most of technology solutions. With a comprehensive property management platform you can ensure all of your data and documents are easy to find, accurate, and ready for filing. Here’s to getting a great return!