As February rolls along, it may be a good time to start thinking about filing those taxes of yours; yes, it’s the dreaded tax-filing season! As that April 15 deadline creeps closer and closer, real estate professionals are scrambling to find the best ways to pay as little as possible without raising any IRS red flags.
The average real estate agent’s business expenses during the year come in around $6,500, while top performers’ expenses can exceed $10,000. If you’re not tracking and deducting all of your eligible business expenses, you’re shrinking your net income and paying too much in taxes.
Know you deductions and save money. It’s always advisable to consult with your CPA before filing your taxes and remember that maximizing your tax deductions starts with keeping your finances organized.
According to IRS, any business that pays commissions are usually under fully deductible business expenses, and no entrepreneur should ever overlook this deduction.
Example: You’re an investor specializing in flipping houses for homeowners who require immediate cash. You contracted two partners and promised 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.
For most Real Estate Agents, spending a significant time in the car is nothing out of the ordinary. In 2020, you are able to deduct 57.5 cents per mile driven for business use (down half a cent from the rate for 2019), 17 cents per mile driven for medical or moving purposes (down 3 cents from the rate for 2019) and 14 cents per mile driven in service of charitable organizations (rate is unchanged from 2019).
You have two choices when claiming a vehicle tax deduction
The simple method where you take a cost per mileage driven for business.
For 2019, the per-mile deduction is $.58 per mile.
Simply put if you drove 10,000 miles, you could deduct $5,800
Additionally, you can also add registration fees and taxes, vehicle loan interest, car washes, tolls, and parking fees to the standard mileage deduction.
The more complicated method is where you itemize the different expenses made throughout the year to maintain and service your vehicle/transportation.
Here you can deduct Maintenance, Gas and Electricity, Parking, Lease Costs, Car Washes, Tires, Licensing, Registration and Depreciation.
If you drive over 15,000 annually and your vehicle is less than $30,000 than the standard mileage deduction is most likely your best bet. If you have an expensive vehicle and don’t drive over 15,000 annually, you are likely better using the more complex method of itemization.
The Home Office deduction can offer huge savings during tax time for remote workers like many Real Estate Agents if filed properly. This deduction can be the most confusing and misunderstood. For many people so it is important to take your time and read all of the guidelines.
You must first meet these two requirements
Part of your home must be used regularly and exclusively for conducting business.
If you are a top producer in the Real Estate industry, you probably have a decently sized marketing budget. Some common marketing costs come from spending on postcards, flyers, business cards, virtual staging, billboards or even Zillow ads.
You can expect to recoup roughly half that expense in tax deductions.
It’s not only personally fulfilling, but donating to charity can help you save money on your taxes.
Example: Anna Realtor attends a charity golf tournament organized by a client of hers. The cost to play is $400 and she purchases $300 of raffle tickets while at the event. Assuming it would normally cost $200 for a tee time and food and drinks on the course, Anna could deduct $200 on her Schedule A.
Discussing work with a client, co-worker, or friend while purchasing a meal, allows you a write-off of 50%. Be sure to document who you ate the meal with and a small description about what you discussed.
The IRS allows real estate agents $25 to spend on client gifts. Because so many agents spend more than this on closing gifts, to avoid issues you can add branding or your logo so you are able to consider it marketing and claim a higher deduction.