Need advice on tracking income/expenses from RE for taxes, etc.

[Jordan Becker]

Hi all, I could use some advice on how best to track my income/expenses from RE investments in a way that will facilitate tax return prep by my CPA, but which is not unduly time-consuming or tedious.  I'm still a novice at RE investing, currently own two small MF properties that I bought in late 2021.  I have a professional property manager (PM), who sends me a monthly statement detailing all income/expenses and will send me a form 1099 for tax purposes. But there are other expenses the PM has no knowledge of, such as insurance, property taxes, loan interest, remodeling costs, etc. -- so I can't rely only on the PM's monthly statements and 1099 to track my overall income/loss from the RE.  (My PM uses Rent Manager software, in case that is relevant.)

Last year I manually input all the income plus every individual expense into an Excel spreadsheet, which I then sent to my CPA to prepare my tax returns. But it is becoming way too tedious and time consuming to input all that data, as there always are so many individual expenses, even for just 6 units. 

Any suggestions for a better way to track income/expenses in a way that will facilitate tax return prep, but which is not unduly time-consuming or tedious?  I've considered simply inputting into the spreadsheet the total income/expense from my PM as a single lump sum every month, and then adding only the other expenses (insurance, property tax, loan interest, remodeling costs) as individual line items, since there aren't as many of those.  That would greatly reduce the amount of data I need to input, but I'm not sure if it would be sufficient for tax purposes, or from a general business record-keeping perspective.

Any help on this would be appreciated. Thanks!

[Richard F.]

Quote from @Jordan Becker:

 I have a professional property manager (PM), who sends me a monthly statement detailing all income/expenses and will send me a form 1099 for tax purposes. But there are other expenses the PM has no knowledge of, such as insurance, property taxes, loan interest, remodeling costs, etc. -- so I can't rely only on the PM's monthly statements and 1099 to track my overall income/loss from the RE.  (My PM uses Rent Manager software, in case that is relevant.)

Last year I manually input all the income plus every individual expense into an Excel spreadsheet, which I then sent to my CPA to prepare my tax returns. But it is becoming way too tedious and time consuming to input all that data, as there always are so many individual expenses, even for just 6 units. 

Any suggestions for a better way to track income/expenses in a way that will facilitate tax return prep, but which is not unduly time-consuming or tedious? 

If it is an option, with your PM, change the mailing address on your Property tax, insurance, mortgage payment, etc. to your PM's office, and have them pay it direct out of your income, same as other invoices. They may also let you submit an invoice for work/materials you provide, which they might show as an Owner Contribution or other account. We always recommend this for the very reason you are inquiring about, and it has never been an extra cost for the clients. You end up with EVERYTHING totaled on your year end statement, and all invoice copies documented in each of your monthly reports, very simple to hand over to your tax person.

Through the years, I have always seen a few clients that insist on paying these big items directly, and  have never understood why they do so. Most, however, have us pay everything out of the income, depositing their net rental and mailing/emailing their current month reports on/around the 15th.