Real estate tax deduction: What you should know as an agent
In this article we’ll talk about real estate tax deduction. If your question is “Is real estate tax deductible” then it is that joyful time of the year again: tax season!
Moreover, what better way to celebrate it than with some real estate tax deduction tips. So let’s grab a real estate agent tax return sample and see how we can keep more money in our pockets!
Agents across the country look for a way to maximize their deductions as many of them have a variety of expenses.
The better you are at identifying which realtor expenses you can use as deductions, the more of your hard-earned money stays in your pocket. This knowledge is invaluable whether you are doing your taxes or you have an accountant.
You should always avoid overpaying on your quarterly and year-end taxes.
Being an independent real estate agent is great, you are your own boss, you can work on your own schedule, you can earn much money if you work hard enough, but, since brokerages are not traditional employers, taxes are not withheld from your paycheck.
That does not mean that you are tax exempt. Trust us, the IRS will collect what is theirs. Additionally, you as a real estate agent are responsible for self-employment tax, which covers your Social Security and Medicare tax.
Independent businessman such as yourself is facing many responsibilities, we know, and that is exactly why it is important to know what to you owe when you owe it, and yes – how to reduce your taxes.
So, are realtor fees tax deductible? Yes, they are. Do we know any tax strategies for real estate agents? Yes, we do. In this article, we will share some of those tips and strategies. So, grab your real estate agent tax deductions checklist and let’s begin.
An everyday real estate agent’s business can average $6,500 in expenses, while top-tier players can exceed $10,000. Why is this important? Tracking and deducing all of your eligible business expenses can shrink your net income, meaning that you will pay less tax.
Transportation deduction – Vehicle mileage
One of the real estate agent tax deductions is bound to your means of transportation.
The reality is that you spend countless hours driving between properties and appointments, so you must know how to determine whether you make the standard mileage deduction, or track all your vehicle-related expenses.
High mileage drivers (10,000 or more) are likely to get the greatest tax benefit if they opt for standard mileage deduction. On the other hand, if you are a low mileage driver, it is better to track the expenses.
What about taxi or uber fare?
Urban agents avoid owning a car in a large city. Instead, they opt for taking a taxi ride, Uber or Lyft as a way to quickly and easily move around town. While in the backseat you have additional time to check and answer emails, talk to your clients or make phone calls.
And all of those fares are tax deductible.
Tax deduction via marketing? Sign me up!
You read that right! Every successful real estate agent invests in marketing and advertising materials, and the good news is that business cards, flyers, ads and promos are all tax deductible.
Even writing and designing fees, as well as whether the materials are produced by a part-time hire or an agency, are also deductible!
Working from home or brokerage office?
Attention, home-based agents!
Real estate agent taxes are deductible if you dedicated an area of your home for work, and even if you have office space at your brokerage (that is, unless you are deducing desk fees already).
The office deduction offers two methods of deducting taxes: the regular, and the simplified. The usual pick here is the simplified method, but if you live in a high-cost area and have a large home office, the regular method is perfect for you.
What about my office supplies and equipment?
Using stationeries, photocopies, and other office consumables are mandatory for any real estate business, and some of those supplies and equipment are tax deductible. These include furniture, fax machines, computers, telephones, copiers and so on.
Regarding telephones, having a dedicated landline telephone for your office allows you to deduct its expense fully. If you are a cell-phone user, you can deduct the business percentage of the expense.
Business meals and entertainment deduction
Real estate agents can deduct meals as a business expense when they are travelling on business and when dining with clients to conduct business. Fifty percent of your total expense can be deducted, and that includes tax and tip for the meal.
In case the agent had an event for the general public, such as an open house, he can deduct 100 percent of the cost of food and refreshments.
Deductible commissions? No way!
If you are working with other agents or other employees and paying them commission, you are eligible to deduct business expenses fully.
Additional education and training
Education and training are eligible for realtor tax deductions, which in real estate business can save a lot of money. The industry and the market are everchanging, and if you do not invest in continuous education, you will quickly be crushed by the competition.
Some states even require you to continuously learn and grow.
Taking classes, training courses and real state seminars to maximize your potential and advance your career is a must, especially since you can deduct registration fees, certain travel costs, and related materials. Of course, there are some requirements:
- The training course or class must be from the same trade or business.
- Taking the course cannot be to meet minimum educational requirements.
- The course must improve or maintain the skill related to your field of real estate.
Can I deduce fees, licenses, memberships, and insurance?
Good news is that the annual fee which is a common cost in the business is real estate tax deductible. What does that mean?
It means that licence renewals, professional memberships, and MLS are all eligible for a tax deduction. Also, business insurance and Errors and Omissions are fully deductible expenses.
Professional Growth and Travel
As we already covered, top real estate agents are constantly on the lookout for the latest professional classes, trade shows, or coaching. Since they often have to travel to attend an event or meet with a coach, they can deduct transportation and accommodation costs.
Retirement plan as a way to deduct tax
Another way to get tax write offs for realtors is to contribute to a retirement plan. This way of deducting tax is limited by your contribution limits, which, in case you contributed to a traditional IRA may be fully or partly deductible.
Ending thoughts on a real estate tax deduction
The real estate agent tax deductions worksheet is nothing to be afraid of. Sure, the numbers and percentages can look a bit intimidating, but an experienced real estate agent sees this worksheet as a way to keep more money in his bank account.
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