6 Tips That Can Reduce Real Estate Pros’ Taxes
April 14, 2020
The IRS has moved the federal tax day to July 15, but in preparation, there are several things real estate pros can do to lower their tax bill. Many agents and brokers classify themselves as self-employed under federal tax guidelines. Income tax, therefore, is not automatically withheld from paychecks and generally must be paid through quarterly estimated tax payments.
Self-employed status means that real estate pros may be eligible to deduct their business operation expenses. Homesnap, a national real estate search portal, recently highlighted tips from tax accountant Brian Stitcher with JBS & Company LLC in Stevensville, Md. Here are six:
1. Be sure to deduct any fees, licensing expenses, membership dues, and insurance premiums related to your job. Compile records of any dues or fees you incur as an agent or business owner, such as MLS dues, state license renewals, real estate association dues, and brokerage desk fees. They are considered deductible business expenses.
2. Keep track of all expenses related to your car, such as maintenance, repairs, mileage, parking, replacement. “Between home showings and professional conferences, agents frequently travel across their home state and the country; however; when filing their tax returns, many leave money on the table when it comes to travel and transportation,” says Stitcher. According to the IRS, you are able to deduct $0.51 per mile driven for work as well as any car maintenance or repairs, car insurance, parking fees, or new car purchases. For any education or business purpose that requires further travel, agents can claim: travel airfare, lodging, and meals (up to 50% deduction on the cost of meals).
3. Deduct marketing and advertising expenses. Marketing your business and brand is a big part of acquiring leads. Marketing tactics can include physical materials like flyers, promos, and business cards, or digital materials such as website development, ads on Instagram, Facebook, Waze, or Google. Most of these costs are a deductible business expense.
4. Include classes and coursework. To stay ahead of the competition and well versed in the latest trends in real estate, agents often engage in real estate coaching, seminars, and training. Registration fees or any other education-related costs can be deducted.
5. Consider technology deductions. Business equipment such as your computer, any software fees or purchases, office supplies, and even your cell phone are considered deductible expenses. “Agents or brokers that permanently work from home may also be able to claim expenses related to maintaining their home office,” Stitcher says.
6. Don’t forget those closing gifts. Offering small gifts after the selling process is complete is an important way to maintain client relationships and loyalty. According to Stitcher, you can only deduct $25 per person per year or, if your client is a couple, $50 per couple per year.
Updated: September 23, 2021