Tax Tips for Realtors
As a realtor, you’re most likely on the go constantly, checking out properties, showing listings, logging office time to fill out paperwork, and networking with potential clients.
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As a realtor, you’re most likely on the go constantly, checking out properties, showing listings, logging office time to fill out paperwork, and networking with potential clients. You are also probably considered self-employed as far as the IRS is concerned. But are you taking advantage of all the tax benefits available to self-employed individuals?
To help our real estate clients and others understand the most important year-round tax planning tips for their businesses, Hanson & Co. has provided a list of some of the most forgotten, but very valuable, tax deductions you should consider below:
- Car expenses. If the bad news is that realtors are in the car a good portion of working hours, the good news is that realtors can deduct related auto expenses. This can include gas, parking fees, tolls, oil changes, car washes, and repairs. Additionally, the purchase expense of a new car or lease fees are also tax deductible. If you aren’t good at keeping accurate records for each and every car expense, consider taking the standard mileage deduction.
- Home office expenses. If you use your home for business purposes, even if you also have a separate corporate office location, there are a number of valuable deductions you can take, including a percentage of your:
- Monthly rent (if you rent instead of own)
- Mortgage interest
- Renter’s or homeowner’s insurance
- Condo association fees
- Maintenance or repairs for the home office
- Property taxes
- Casualty losses
However, in order to deduct these expenses, the home office must meet specific IRS requirements, including being solely used as a home office (not doubling as a den or spare bedroom, for instance). If you are provided an office at the brokerage you work for, then the home office deduction is unavailable to you. Don't want to track all of your home office expenses? Now the IRS gives you the option of taking a simplified deduction of $1,500 on a home office that is 300 square feet.
- Office supplies and equipment. Aside from the obvious major expenses of computer equipment and cell phones, which are often depreciated over time, realtors can also deduct the money they spend on office supplies, computer software, and postage for mailings.
- Health insurance premiums. As a self-employed taxpayer, you are permitted to take a special “above-the-line” deduction for the health insurance premiums you pay for yourself and your family.
- Insurance. If there is insurance purchased specifically for the business it may be deductible on taxes.
- Professional fees. Fees paid to accountants, attorneys, and other professionals assisting you for business-specific purposes can be deducted on your income taxes.
- Continuing education and membership dues. Any education that helps agents do their job better can count toward your deduction – from online training courses or a class at a local college to trade magazine subscriptions. In addition, take a deduction for dues paid for business-related memberships in professional and public service organizations where you might conduct networking or share ideas. Unfortunately, dues for places like country clubs do not count.
- Print and online advertising. When you need to place a listing or open house in the local shopper or on a real estate website that requires a fee, that money is considered deductible.
- Gifts, meals, and entertainment expenses. Keeping clients happy and gaining business or referrals may include buying housewarming presents, breakfast or lunch meetings, and other expenses. While business meals and entertainment are only partially deductible, they are worth keeping track of to gain some tax benefit. To qualify, substantial and bona fide business discussion must take place directly before, during, or after the meal or entertainment event. Your records must show the amount spent, the date, time and place of the meeting, business purpose, and also the names and business association of the individuals involved.
- Business travel expenses. Out-of-town business travel to conventions, meetings, and other business events is fully deductible, including the cost of lodging, local transportation, and miscellaneous expenses (including laundry charges, phone calls, etc.).
Document, Document, Document
We know main rules of real estate, “location, location, location.” Keep the same singular focus when it comes to recordkeeping for business tax purposes. All business expense deductions mandate that adequate records and copies of receipts, invoices, and other proof of transactions be retained. This is necessary to ensure proper documentation in the case of a IRS audit.
Planning ahead and keeping good records of your business expenses may take some time and effort, but it can also save a lot of money in the long run. If you have questions about tax planning or if you want assistance putting your real estate business in the most favorable tax position, Hanson & Co. wants to help! Call us at (303) 388-1010 or click here to contact us. We look forward to speaking with you!