How do you save for taxes?

[Becky Hoffman]

Do you open an account to escrow your tax costs or is there another way? I'd rather not have to open another bank account if possible. 

[Kevin Sobilo]

@Becky Hoffman, MORE BANK ACCOUNTS!

Why would you not want to open another bank account? It is easier to budget things if the money is separated. Allow the bank to do the work rather than you needing to track money intended for different purposes all mixed into one pot.

As a different example altogether, when I rehab a property, I deposit the budgeted money into a separate bank account and all expenses for that rehab are paid out of that account. That makes it easier for me or my bookkeeper to identify what those expenses are for and also for me to track progress on whether I am on budget or not without having to put a bunch of effort into that.

I recommend this book which is amount how to manage your cash. I use this system and even my bookkeeper uses it for her business.

https://a.co/d/1tnzkhy

[Becky Hoffman]

Kevin, thank you for your response! I've already ordered the book you recommended!

I feel like I have so many bank accounts to keep track of already, I thought maybe another might be overkill. (I have other businesses with their respective accounts. Lol) After reading your recommendation, I think I'll open a savings account linked to the business checking and just do automatic transfers each month. 

Again, thank you for your reply. 

Becky

[Kevin Sobilo]

Quote from @Becky Hoffman:

Kevin, thank you for your response! I've already ordered the book you recommended!

I feel like I have so many bank accounts to keep track of already, I thought maybe another might be overkill. (I have other businesses with their respective accounts. Lol) After reading your recommendation, I think I'll open a savings account linked to the business checking and just do automatic transfers each month. 

Again, thank you for your reply. 

Becky

You're welcome. I'm using 8 checking accounts and a savings account to manage my rentals plus 1 additional account to manage any rehab projects.

I find my online banking basically becomes like a dashboard of my current status and I find that very useful.

This book also gets into how you budget to pay yourself which is hard to figure when all money is intermixed. Their system for paying yourself also evens out the payments. So, that differences in cash-flow from month to month doesn't drastically change what you pay yourself. This makes it easier to count on the income for your personal budgeting.

[Becky Hoffman]

Love it!

[Theresa Harris]

I don't have a separate account (and yes I have a single account for everything because it works for me). I just put the rent money in and take out money for bills. I know approximately what they will be and budget accordingly.  If you find it easier, have one account where you save for bigger projects or transfer $x a month to for taxes.

[Becky Hoffman]

Quote from @Theresa Harris:

I don't have a separate account (and yes I have a single account for everything because it works for me). I just put the rent money in and take out money for bills. I know approximately what they will be and budget accordingly.  If you find it easier, have one account where you save for bigger projects or transfer $x a month to for taxes.

 Yes, this is another option. Maybe I'll use one account for maintenance, & taxes. Thanks

[Nathan Gesner]

You need two accounts: checking and savings. If the properties are split into more than one LLC, then each LLC will need its own accounts.

Checking: collect all income here, then use it to pay bills. Pay the mortgage. Pay for maintenance. If you are setting aside funds for capex, taxes, insurance, or other expenses that don't occur monthly, transfer those funds to Savings each month and hold them there until it's time to spend them. You will receive the security deposit in Checking but then transfer it to Savings.

Savings: Hold the deposit here so it's separate from operating funds. You can also hold money for maintenance, capex, taxes, insurance, or other projected expenses. When a tenant moves out, transfer the deposit back to Checking so it's ready to apply towards expenses or refund the Tenant.

If you end up with excess funds in the Checking account, I recommend you transfer it to a third account designated explicitly for future investments. That ensures you don't spend it on other things and know exactly how much you have to spend on the next purchase. If mixed in with your deposits and reserve funds, you may accidentally spend money you shouldn't have.

[Becky Hoffman]

Nice explanation! That helps a lot, thank you.