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The US tax code is full of deductions, credits and exemptions. The ones we use most often are the standard deduction, personal exemption and the child tax credit. What do you know about these?
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The “real estate agent tax deductions checklist” is a list of the top 20 realtor tax deductions. It also includes a link to the IRS website for more information.
Independent real estate agents may be eligible for a variety of tax deductions that may help them reduce their taxable income, putting them in a lower tax rate and saving money.
Download our 2019 Federal Income Tax Bracket tables to see which tax bracket you fall into before deductions. If you’re in a higher tax band, consider what company costs you have and which ones can be tax-deductible to lower your tax rate.
1. Mileage of the vehicle
Work-related mileage may be deducted from your taxes. Every year, the IRS establishes a “standard mileage rate,” which takes into account gas, wear and tear, and other driving-related expenditures. The mileage rate for 2019 is 58 cents per mile. To claim the deduction, multiply your work-related miles by the IRS mileage rate.
For example, if you traveled 15,000 miles for work last year, your mileage deduction is $8,700. (0.58 x 15,000).
You must keep track of your kilometers in order to claim the discount. You may keep track of your mileage by writing down your beginning and ending miles for each journey on a paper log. Another option is to use a phone app to monitor your miles. Whichever technique you employ, it must be as precise as possible in order for you to deduct the highest amount feasible. The IRS will want to see a meticulously maintained mileage journal if you are audited.
2. Purchasing or leasing a new vehicle
While the depreciation of a freshly acquired automobile may be deducted, if you lease a car, you can deduct practically the whole monthly cost. Many leases contain mileage limits, which require you to pay a cost per mile if you exceed a certain number of miles. You may be able to deduct the mileage expenses you must pay in addition to your monthly lease payment.
3. Deduction for Home Office
You may deduct expenditures linked to your office and administrative chores if you operate from home. You must have a separate workplace at home that you use frequently and solely for your real estate firm to be eligible for the home office tax deduction. It must also serve as your main work place.
Direct costs such as furniture and equipment may be deducted. Indirect expenditures, such as a percentage of your rent or mortgage payment, utilities, and internet, may also be deducted. The normal home office deduction for the 2019 tax year is $5 per square foot, with a limit of 300 square feet.
For example, your real estate firm is run out of a corner of your bedroom. You have a 250-square-foot space to work with. Multiply 250 square feet by $5 to get your home office tax deduction. ($1,250 multiplied by 250)
4. Office Space Rental
Your whole rent or lease payment for your workplace might be deducted. This includes any extra costs your landlord imposes on you for janitorial services for your office space as well as cleaning and upkeep of any communal spaces in the building.
5. Office Equipment
Paper, printer ink, pens, and staples are all tax-deductible office supplies. In addition, the cost of your chair and workstation may be deducted. Decorations for your workplace, as well as materials to paint it, are tax deductible.
6. Office Supplies
Office equipment, like office rent and supplies, is tax deductible. This includes computers, copier machines, water coolers, and any other office equipment you acquire. In general, you must depreciate a percentage of the cost throughout the useful life of the asset. If your acquisitions fulfill the Section 179 requirements, you may be able to deduct up to $1 million in property and equipment in the first year rather than over many years.
Costs of Internet and Phone
Tax deductions are also available for internet connection and phone systems. These services might be major costs for your company, depending on your needs.
For example, voice-over-internet-protocol (VoIP) costs $32.95 per month or $400 per year, compared to $560 per month or $6,756 per year for landlines.
Cellphones and tablets are number eight on the list.
When used for business, you may deduct the cost of telephones and tablets, including both monthly service costs and the purchase price or depreciation of your gadgets. You should keep your business phone and/or tablet separate from your personal phone and/or tablet. This will make determining which charges and fees are related with your company much easier. If you don’t have separate devices, you’ll have to keep track of how much time you spend working on them and may only deduct that amount.
9. Real Estate Apps and Software
You may require specialist software or tools as a real estate agent to keep yourself and your clients’ information organized. You may be paying for a customer relationship management (CRM) tool, transaction management software, real estate specialized accounting software, open house software, comparative market analysis (CMA) software, landing pages, websites, and other services as an independent agent. The cost of software on a monthly basis might easily approach $300.
Keep meticulous records of your monthly expenditures. The majority of the instruments you use for your company are tax deductible. Aside from the software, the cost of acquiring mobile devices is often subtracted.
Costs of Marketing and Advertising
Your whole marketing and advertising budget is tax deductible. Whether you spend thousands on billboard advertising or only a few hundred dollars on virtual staging, you may expect to deduct around half of the cost on your taxes.
Real estate brokers utilize signage as one of their primary marketing and promotional tools. Make sure you preserve receipts and records of where and why your signage were utilized. Signage is a legitimate tax deduction.
11. Franchise and Desk Fees
Desk fees might mount up quickly depending on which agency you work for. Desk fees of $150 to $400 per month might be charged by well-known and high-split franchisees. However, the additional advertising and word-of-mouth reputation that the agency has may make these payments worthwhile. Furthermore, the fees are tax deductible.
Tax deductions are available for franchise fees paid to national franchises. These costs might vary greatly depending on the franchise you’re dealing with. Franchise fees, like desk fees, are often used to fund the franchise’s overall marketing and promotion. The first agencies that come to mind for prospective customers are usually well-known ones. Franchise fees are totally tax deductible since they are directly tied to your company.
12. Membership dues and annual dues
Professional organizations can keep you informed about industry news and events. These memberships and subscriptions often include industry-related journals and online material. These costs may be deducted from your taxes.
That means your Real Estate Board of New York membership dues, as well as dues for designations or certifications such as accredited buyer’s representative, short sale and foreclosure resource, and seller representative expert, are tax deductible. The only disadvantage is that you cannot deduct the percentage of your dues that goes to political lobbying. Check the paperwork that came with your membership to see what percentage of your dues, if any, is used for political lobbying.
13. Training, conventions, and conferences
You may deduct travel, accommodation, and food expenditures if you travel for business to a convention, conference, or training event. You must maintain a detailed record of your journey as well as receipts for all spending. A travel itinerary or conference documents might be used to prove that you were on a business trip. You may even deduct a percentage of your meals while on business, but only up to 50% of the actual meal expense.
Client Gifts 14
If you buy a present for a customer, you may deduct up to $25 for each gift you buy. While a proper closing present should cost considerably more than $25, being able to write off a part of it is still better than nothing. Client gifts might be anything from a gift card to a gift basket to any other item you choose to provide. It’s usually a good idea to keep your customers satisfied.
15. Lifelong Learning
Courses in continuous education (CE) are also tax deductible. Courses for continuing education are often affordable, but every little bit helps. Determining which CE courses are ideal for you and which suppliers are certified to supply you with legitimate CE credits may be difficult. Before you send any money, double-check that the supplier is a recognized CE provider.
16. Professional or Legal Services
You may deduct any expenditures incurred as a result of using professional services. This includes, but is not limited to, legal, tax, graphic, and site design expenses, as well as fees paid to a title business. Ensure that the prices are fair and comparable to those paid by other specialists in the same field. The IRS will raise a red flag if you deduct costs that are more than normal for the kind of service.
Insurance is number seventeen.
Errors and omissions (E&O) insurance and small company insurance are both deductible. However, you must have your own policy. If your brokerage pays or charges you for E&O, it is not deductible unless it is covered by deductible desk fees. If you pay desk fees, be sure you understand what they cover. It’s most likely deductible if you have your own coverage that you pay for out of pocket.
Wages and Benefits Paid to Employees (number 18)
While your agents are unlikely to get paid or receive perks from the organization, your administrative assistant and cleaning crew are likely to. Employee wages, as well as perks such as healthcare and tuition reimbursement, are tax deductible.
Contribution to a Retirement Plan (19.)
Contributions to a retirement plan are another wonderful real estate agent tax deduction. Your contribution limitations are the sole restriction on this deduction. A normal individual retirement account (IRA) allows you to contribute up to 12.5 percent of your income (up to $53,000), while a simplified employee pension (SEP) IRA allows you to contribute up to 25 percent of your income (up to $53,000), and a Roth IRA allows you to contribute up to $5,500. Furthermore, contributions to your retirement account may often be made after the calendar year ends and before your taxes are due. Time limits should be discussed with your tax preparer.
20. Interest on Business Loans or Credit Cards for Businesses
Another tax benefit available to real estate agents is interest on company loans or specialized business credit cards. The only stipulation is that the loans or credit lines must be utilized purely for business purposes in order to qualify for the deduction. If you pay for business expenditures using a personal card or personal loan, you may still deduct them, but you must keep track of which expenses were business and which were personal and be able to substantiate it.
4 Tax Deduction Strategies to Maximize Your Savings
Whether you intend to hire a tax expert or file your own taxes using tax software, there are a few fundamental rules to follow in order to maximize your tax deductions while remaining compliant with the IRS.
1. Deductions must be “common and necessary.”
The IRS utilizes the phrase “ordinary and essential” to decide whether a company cost is tax deductible. While this may seem ambiguous, it’s something you should constantly keep in mind when calculating your tax deductions.
For example, if you sell five $100,000 properties in Ohio each year and attempt to deduct the cost of a brand new Ferrari 458, the IRS will most likely come after you. While this is obviously an exaggeration, you should use “ordinary and necessary” as a broad guide for all of your possible deductions.
2. Don’t evade paying your taxes
You are ultimately accountable for the information disclosed on your tax return, whether you do it yourself or employ a tax expert. Your signature at the bottom of the tax return confirms that you agree with all that has been reported and that the data is correct.
That’s why it’s crucial to look through your tax return with a certified public accountant (CPA) or a tax expert to ensure you understand the deductions and income reported on your return. It is a criminal if you are discovered faking your taxes. If you are convicted of tax fraud, you might face a sentence of up to five years in prison and a fine of $100,000 or more.
3. Seek the advice of a tax professional alone.
Even though your coworkers have worked in the sector for a long time, they are not tax specialists. You can’t rely on them to provide you reliable tax advice. Always visit a competent tax expert if you have a question regarding your taxes.
4. Keep a record of everything.
You should be recording every cost if you aren’t already. You should keep account of all business costs, including mileage, food receipts, and membership dues. This might be as easy as installing a business spending tracking app on your smartphone.
Throughout the year, use a checklist to ensure you don’t overlook any crucial deductions in preparation for tax season.
Conclusion
It’s not easy to be a real estate agent. There are many rules, regulations, and ever-changing circumstances to keep track of. Tax season does not have to be difficult. Just keep track of your expenditures throughout the year. Even if you’re not sure whether they’re tax-deductible, keep track of them anyhow. The greatest approach to ensure you obtain the most deductions possible at tax time is to be well-informed and prepared.
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