Since real estate agents are often self-employed, there are many business expenses that can be considered for tax deductions. According to the IRS, real estate agents can deduct any business expense that is both ordinary and necessary to make a profit. Are you in the know on tax tips for real estate agents?
First of all, make sure you are aware of the various tax breaks available to you. Some IRS-approved tax deductions include:
- Advertising signage
- Business cards
- Office fees (rent, utilities, internet, printing, postage)
- Appraisal fees
- Escrow fees
- Commissions paid
- Real estate coursework
- Professional dues
- Vehicle expenses
The list goes on. And as you can imagine, so many of these items are often missed. Here are a few tax tips for real estate agents to make sure you’re prepared for tax season.
Have an electronic backup
Good record keeping will save you when tax time comes around. Your records don’t need to be extensive, but they do need to be accurate and usable. If you don’t like—or don’t trust—having a paper trail of organized receipts, get in the habit of taking a picture of your receipts with your camera phone. Then email them to yourself and store them electronically.
In addition to the tax deduction list above, meals and entertainment can be either 50% or 100% deductible, depending on the type of event. Make sure you hang on to each receipt, along with date, time, and reason for the expense. Include the client’s name on the receipt so you know what business items you were discussing.
Keep a mileage log
If you are like most agents, you probably use your personal car for business. Be sure to separate and record your travel. The easiest mileage log is a notebook where you right the date, the trip purpose, and the miles driven. You will also need to know the total miles the vehicle is driven for the year, so write the odometer reading down every January 1st. Mileage will be one of your biggest real estate business expenses, so keep track of it religiously.
Hire an accountant
Real estate agents usually report their income and expenses on IRS Form 1040, Schedule C, which is for reporting profit and loss from a business. Schedule C lists a wide range of categories of expenses. It also offers an “Other expenses” section where you can write off just about any cost you incur. Real estate agent tax planning is highly dependent on your individual circumstances. With guidance from a CPA (certified public accountant), you can be sure you are claiming all allowed expenses. Although not absolutely crucial, it’s best to hire someone familiar with the real estate industry to ensure your return is prepared to your best advantage.
More tax tips for real estate agents
Want more resources that will help you increase your tax deductions? For more information, read the IRS entertainment expense rules and the IRS home office deductions rules. These helpful resources will help you track your real estate business expenses so that you will be better prepared come tax time.
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