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Landlords, rental property owners, property management companies and property managers often do not realize their tax preparers, unlicensed and licensed, may be putting them at risk. Both may give no advice – or even worse, incorrect advice – about complex tax laws, and only input numbers the owner provides into a tax preparation software program. All of them in effect serves as their own tax advisor, while still paying the tax preparer for tax counsel.
Tax Audit Tips
The result is that they either miss deductions and pay too much in taxes, or misrepresent their deductions and pay too little in taxes. Neither benefits the landlord, rental property owner, property management company or property manager, and the latter puts them at risk for an audit.
Unlicensed tax preparers are not required to hold a high school diploma or have training in tax preparation. In fact, The Treasury Inspector General for Tax Administration found that only 39 percent of the returns prepared by this group were correct, and is currently considering regulation.
To help defend against an audit, Landlord, rental property owner, property management company or property manager should use the following five tips:
1. The client should use property management software to keep books on a daily basis and input all financial transactions into this software. The client should use one database for their business and one for personal financial data to ensure that 100 percent of financial transactions are recorded.
2. Verify that the tax preparer is licensed, and question them to determine if they are knowledgeable about the exceptions for small business enterprises.
The Landlord, rental property owner, property management company or property manager should require the tax preparer to:
3. Submit a list of questions to get the additional missing information and prove that review and analysis is being conducted.
4. Substantiate larger deductions and provide all documents received from banks and brokerages in order to create a detailed paper file (to “paper the file”) in case of an audit.
5. Provide a list of the adjusting journal entries made by the tax preparer/accountant to the financial database. After the tax return is prepared, the bookkeeper must add the adjusting journal entries to their database.
Preparing for a tax audit in advance allows the property management company, property manager, landlord or rental property owner to take the maximum number of tax deductions allowed yet retain the proof needed for tax authorities if the tax return is ever audited. Most of all, it also gives the owners or managers “peace of mind” – and the smallest tax liability possible.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. 5 Tips for Landlords Rental Property owners Property Management companies and Property Managers on Avoiding an IRS Audit is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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