Tax Deductions Every Real Estate Agent Should Know
I like being organized, I like saving money but the process of tracking my own business expenses and understanding tax deductions that are available is a bit overwhelming. Thus, I rely on a professional accountant to do my taxes. However, I have been researching how to maximize my tax deductions as a real estate agent and identifying which expenses I can use as deductions to keep more of my hard-earned dollars. I hope the summary below helps provide you a general guide to understand the process and clarify which expenses are allowed to help you avoid overpaying on taxes.
Vehicle (Standard or Actual), Taxi & Uber Fare
How do you determine whether to go with the standard mileage deduction or track all your auto-related expenses? You won’t be able to take both deductions, so you need to evaluate which method provides a bigger tax savings for you.
Standard Mileage Deduction= drive 10,000 miles or more per year for your real estate business. The IRS requires you to keep a detailed log in order to claim this deduction, which includes date, time, mileage and purpose of the trip. It can be especially beneficial to have an app that tracks and records your trips. For tax year 2017, this is $0.535 per mile.The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile.
Actual Cost= drive less than 10,000 miles per year for real estate business or have high car payments. The actual method allows you to deduct the items in the following expense: gas, depreciation, fees, insurance, portion of lease payments or auto loan interest, maintenance/repairs (oil changes, tires, brakes, etc.) washes and registration (title, licensing and fees).
Marketing, Advertising, Signage, Donations & Client Gifts ($25 or Less)
Business cards, flyers, signs, ads, writing, design fees, promos, graphic designer, digital and online advertising costs are all deductible. This includes website design and hosting fees, search engine marketing, pay per click advertising, video production, and any other IT-related costs.
Donating money to a charity can be marketing in which you can claim up to 50 percent of cash donations.
Client and closing gift deductions are capped at the first $25; however, being able to deduct a portion of the expense is better than nothing.
Home Office, Desk Fees, Office Rent & Franchise Fees
Do you have a dedicated area of your home exclusively for work? Even if you also have office space at your broker’s office; you are eligible for a home office deduction (unless you are deducting desk fees already). Also, your home office deduction amount must not exceed your gross income from the business use of your home after business expenses, no matter which method you choose.
Regular method= large home office or live in a very high-cost area as there is no limit on the amount of office space used for business. You determine the deduction by figuring out the percentage of your home used for business. You can then use your business use calculation to determine how much of your mortgage (or rent) payment, utility cost, internet and homeowners (or renters) insurance premiums can be deducted. Dedicated expenses include furniture and equipment, renovations, paint and decorations.
For example, if your home is 2,500 square feet and your home office is 400 square feet, you use 16% of your home for business. You are allowed to add up 16% of your housing payments, utility costs and insurance premiums, etc. to use as your home office deduction.
Simplified method Most self-employed people find that the simplified method maximizes their deduction. You receive a standard deduction of $5 per square foot, up to 300 square feet (the deduction can’t exceed $1,500).
Desk Fees National franchise or an independent broker desk fees are deductible. However, if you are taking a deduction for brokerage desk fees, you will not be able to claim the home office deduction.
Office Supplies, Equipment, Software and Business Tools
Consumables needed to run your business such as stationery, photocopies, dedicated landline, cell phone/ tablets (the business percentage of that expense). Other large purchases that can be expensed in full — or depreciated over a number of years — include furniture, copiers, computers and cameras. All software- including lead generation subscription can be deducted.
Meals and Entertainment
Deduct 0 percent generally can’t write off your solo lunches and dinners unless you’re traveling for business.
Deduct 50 percent of your total expense, which includes tax and tip for the meal when 1). traveling on business or 2). dining with clients or other professionals conducting business or generating referral business. Business entertainment, you are allowed to take the meal deduction only if business was discussed during the meal, or immediately before or after.
Deduct 100 percent of your total expense, can be deducted for events to the general public. For example, a well advertised open houses the cost of refreshments and food can be expensed.
Entertainment you are probably going to have a harder time explaining how your $2,000 court side Heat tickets can be written off because you talked to your client for a minute at intermission. That said, you can still write off half the expense if you can prove they’re business related.
Fees, Licenses, Memberships, Insurance, Legal & Professional Fees
Annual fees such as state license renewal, professional memberships, and MLS dues. The portion of your membership dues attributable to lobbying and political advocacy is not deductible. General business insurance and Errors and Omissions (E&O) insurance are both fully deductible business expenses. You can deduct real estate taxes necessary for your business, but not self-employment taxes. Professional services such as fees from your lawyer or tax professional can be deducted.
Wages & Benefits Paid to Employees
While your agents probably don’t work on a salary or have company sponsored benefits, your secretary, personal or virtual assistant, cleaning staff, and administrative staff most certainly do.
Education, Networking, Conventions, Conferences and Travel
Continuing education, professional development through classes, trade shows, conferences, or coaching. Travel expenses such as transportation and accommodation costs to attend an event or meet with a coach can be deducted.
*(If you have a question about your taxes, always consult a licensed tax professional)*