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Tax Deductions for Realtors

Use these loopholes to simplify your tax preparation.

Are you a quick and witty real estate agent, extremely busy with your day-to-day activities? Have you ever given a thought to real estate accounting that is often pushed down the priority list? And when you hear people groaning around you in the month of April, which is tax season, do you sit down and start organizing you messed financial statements? What happens next? Well, you are in turmoil and frustrated as you are unable to track all the numbers. 

To make tax preparation for real estate agents easy, here are 12 tax write-offs that are crucial.

1. Commissions paid The real estate industry is all about receiving and paying commissions to employees or business partners. But how will show you these commissions in your financial statement and whether it is fully deductible or not? According to IRS, any business that pays commissions are usually under fully deductible business expenses, and no entrepreneur should ever neglect this deduction.

For example, suppose you deal in flipping houses for homeowners who require immediate cash, and you contracted two more partners with whom you promised you would give them a 5 percent commission on each sale. In the previous year, one partner finalized a sale of $600,000 and another for $1,000,000. You would deduct $80,000.   This amount should be reflected in your tax form in Schedule C of 10th expense line.

2. Business travel Real estate agents are always on the go as they have sites at different locations. Some places may be near the house, and some may be so far away they require you to fly, as well as pay for lodging and food. 

According to the IRS, you can add your business travel expenses including the entire expenses. However, you only can claim a 50 percent deduction on the cost of meals when you are on a business trip. If you are driving, the IRS enables you to deduct $0.51 per mile driven and up to 100 percent of your car maintenance cost. Besides all these, if you plan smartly, you can enjoy the pleasure of personal and business together without spending much.

3. Office rent and utilities

The IRS gives an advantage to real estate agents who spend a huge amount on office rents and other utilities as a deductible business expense. If you are renting office space, the IRS gives you an opportunity to deduct your utility bills. In case if you are using your home as an office, you can deduct the amount as per square footage utilized for office work.

4. Self-employed health insurance deduction Tax preparation for realtors can be challenging as it not only includes business deductions but self-help deductions as well.  You should find health insurance for yourself; fortunately, it is deductible if you are a Schedule C filer, and your real estate business had a net profit for the present year. Realtors can easily calculate earnings using the optional method on Schedule SE or own 2 percent more of the shares in S-corp earnings you received. If you think you meet aforesaid descriptions, the premiums that you pay for you and your family can be deducted on line 29 of Form 1040.

5. Marketing and advertising expenses Every business industry heavily invests in marketing and advertising to gain popularity and earn better. And the real estate sector is no exception. You might spend on the flyer, business cards, ads and promos, etc., which are all deductible as per IRS.  However, with the evolving marketing and advertising techniques, digitalization has become the need of the hour. You can deduct your website development cost, running ads on Google, etc., all of which are deductible. The realtor can make this deduction in Line 8 on Schedule C.

6. Business equipment expenses Every business requires some technical equipment to stay competitive. You can deduct the purchase price of business equipment, including your cellphone, computer, software and office supplies. You can also account for depreciation for any expensive equipment like computers by using the Modified Accelerated Recovery System. This method helps you to recover the actual purchase price of your business equipment over the years.

7. Fees, licenses, memberships and insurance According to the federal tax system, you can deduct different annual fees for doing business. Being a real estate business owner, you can claim for professional membership, state license renewal and MLS dues. General business insurance and errors and omissions (E&O) insurance are both fully deductible business expenses as well. Plus, you can deduct real taxes while filing your taxes, but not self-employment taxes. Note: The portion of your professional membership dues attributes toward encouragement and political sponsorship is nondeductible.

8. Software and business tools

If you are using software to run your real estate business, the purchase is fully deductible, which includes lead generation subscription services such as customer relationship management (CRM) software. Top tools such as QuickBooks, Sage, NetSuite not only ease the process of accounting, but also makes tax season hassle-free to a greater extent. 9. Virtual assistants and bookkeepers Hiring virtual assistants overseas has become a popular trend over the years. Believe it or not, tax preparation services or accounting services are way more affordable for businesses that hiring in-house experts. If you want to keep your complete focus on your business growth and let someone else manage your books, hire virtual assistants and bookkeepers. They can provide you with financial reports that you can hand over to CPAs for filing taxes.

10. Retirement plan contribution One of the best realtor tax deductions is your retirement plan contribution. If you haven't chosen any retirement plan or you should start researching right away. This deduction is only restricted by your contribution confines. 

11. Legal or professional services IRS gives you the right to write-off any professional services that you may use throughout your business lifecycle including tax professionals, legal professionals, web development professionals and graphic designers.

12. Education and training To keep evolving in your industry, if you want to take up some knowledge related to your domain or learn some advanced courses, you can deduct the registration fees concerning your travel and material cost. But you should keep in mind the following criteria by the federal system:

  •          The training or education you are planning to take up should not be of a different domain

  •          The training is not applicable to meet your basic education requirements

  •          The training or course should maintain or enhance your skills

Now you can dive into this tax season with confidence and deduct your taxes accordingly, which is entirely beneficial for you and your business.


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