If you own investment property then tax time probably sounds like a nightmare, especially if you have a lot of units. The IRS uses capital gains and income tax on property investments, and if you’re charging rent, then you have to pay income tax, and to do so by April 15th. As of January 1′st of this year, you also have to pay a 3.8% surtax on rent income. The IRS Is cracking down on auditing cases, and in fact, have released multiple press releases about an increase in audits in the real estate investment field due to a common lack of compliance. If you want to be sure that you’re doing it right to avoid an audit, or bad news in the future, then you have to do your taxes right. The following include tips for Woodinville property managers and real estate investors.  

Hire an Accountant  

Whether you’re hiring your own accountant and using them throughout the year, or relying on the one employed by your property management company, it is extremely important that you have all of your paperwork. In addition, an accountant will be able to help you with small items like finding loopholes to get you proper deductions, or if you have an income of under $100,000, claim losses rather than deferring them until you no longer own the property. You can choose to hire an accountant to do your taxes once per year, to pay quarterly, or to  

Become a Real Estate Professional  

If you spend over 750 working hours, or at least 51% of your time on real estate, then you are a real estate professional. If you do this, then you qualify for a number of tax advantages, including that you can deduct all of your expenses, even if it produces a loss. If you spend more than 51% of your time each year on another profession, then real estate is regarded as passive income and you do not qualify.  

Hire a Property Manager     

One of the easiest ways to make sure that your taxes are easy to handle is to hire a professional Woodinville property management company, which will allow you to go into your taxes with all of the right paperwork, notes, and data. Some property management companies even have accountants, who can handle the entire process with minimal interaction from you. While this will mean that you won’t qualify as a Real Estate Professional, you likely wouldn’t qualify for that anyway unless you quit your day job, retire, or move to half time on your normal profession. Because most real estate investors are very active in a full career, you can most likely benefit from the advantages of having a professional to keep your paperwork in order throughout the year.  

Taxes are especially difficult for property investors because rent income can apply as passive or active income depending on where else you work, deductions vary based on the amount of money that you make each year, and your day job can affect whether or not you’re allowed deductions. The truth is that the best way to go is to hire a professional.