Right now, you have the prime opportunity to review, assess, and strategize for the coming year. There’s plenty of legwork for investors to get done, so don’t miss out on these important financial strategies.
Financial Moves to Make Before the Year Is Up
1. Consult with your CPA
Don’t make the mistakes of saving your CPA for tax prep. One of the best things investors can do is utilize the expertise of the professionals around them. Meet with your CPA and ask questions – how have IRS guidelines and tax laws shifted? Can you take advantage of those changes? Meeting with your CPA before tax season ensures that you’re on the same page, and, more importantly, that your accountant is up-to-date and knowledgeable about all your potential ways to benefit.
If you’re not feeling like your CPA is the one after previous performance or a less-than-impressive meeting, you have time to find a more equipped CPA before the tax time crunch gets critical.
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2. Pull the trigger on repairs and maintenance
While property improvements that add value are not tax-deductible, repairs and maintenance are! If you’ve been holding back on executing some big repairs, replacements, or maintenance, go ahead and get it out of the way before January 1st. You’ll be able to claim these expenses when you file for taxes, rather than waiting for the next filing year.
Things like pest control, HVAC maintenance, gutter cleaning, landscaping, and professional deep cleaning during resident turnover are deductible. You may not have any big-ticket items to take care of, but these small maintenance services are best done before the new year. Not only do you want the tax advantage but starting off with a well-maintained property in the new year is better than waiting for something to go wrong!
3. Start collecting tax documentation
Now is the time to start preparing for tax filing. You won’t have every piece of the puzzle just yet, but you should have it for the lion’s share of the year. If you don’t know or have forgotten what you need – particularly if, as mentioned about, laws have changed and created new opportunities – ask your CPA. Track things down now so that you’re not in a mad scramble or late on filing.
Remember some of the less obvious deductions, too: professional subscription services and software, accounting tools, industry-related publication subscriptions, productivity apps, cloud storage, investing-related e-books…the list goes on! Start by knowing what documents you need, followed by what documents can put you in a more advantageous tax position.
4. Handle those outstanding debts
Unless you’re in the habit of paying all-cash for every deal, you’re going to have some outstanding debts. This isn’t necessarily a bad thing if it’s good debt, like mortgage or education debt. But if you’ve been floating a credit card balance, take care of it now. These revolving balances only hurt your credit score, which investors must protect!
Additionally, you’ve got to rein in your debt-to-income ratio. A high ratio can harm your reputation with lenders, and you’ll find them more reluctant to offer you leverage – or, the very least, leverage at the best interest rate possible.
5. Replenish your safety net
Scaling your portfolio demands a safety net. Not only do your existing investment properties need those emergency funds in the wings (just in case!), but the bigger your portfolio grows, the bigger that safety net will have to be. You’re going to need funding to cover both the unexpected and funding to make more acquisitions. Inflation, too, increases the demand on your emergency funds. Assess your budget and adjust accordingly.
6. Evaluate year-end moves
How are you going to end this year? How will you start the next? Planning and strategy are something every real estate investor needs to address around this time. For one, what are your plans for property acquisitions in the coming year? When should you do business if it can be done now or in January? You may find strategic benefits to holding off or, in the case of deductible line items, biting the bullet.
Review how the year went for you and your investments. Plan appropriate tweaks so that you retain peace of mind and on track with your investment goals.
