As a real estate agent or broker, you likely file your taxes as a self-employed sole proprietor. Because the income you generate mostly comes from individual commissions on home sales, filing with self-employed tax status is the norm even if you work for a larger firm.
While this may come as a let-down since self-employed individuals typically pay more in taxes, this status makes it possible for you to deduct a lot of what you pay in the course of your property management work.
So how do make the most of these deductions?
Maximizing your deductions doesn’t have to be as complicated as it might seem, and you can start by: keeping thorough, consistent records and staying educated on eligible write-offs.
Keep Thorough, Consistent Records
You are going to accrue expenses before you receive that commission check. Such is the work of a real estate agent or broker. While you are out there researching, marketing, and promoting a property, expenditures will occur that are likely tax-deductible.
Here’s how to keep track of them:
Use Great Record-Keeping Apps and Software. Tools like QuickBooks Self-Employed for iPhone and Android allow you to track your mileage automatically, scan receipts, organize business expenses, and be prepared for tax time all from the convenient mobility of your phone.
On your desktop, you can make use of programs like TurboTax Self-Employed, tracking your expenses for free and paying only when you file.
Store and File all Physical Records. Consider keeping folders in your car for quick storage of physical receipts. Then take these back to a neatly organized office storage system. Invest in some file cabinets and clearly label your storage folders by years. Since some documents will be needed over the course of years for depreciating property like your office equipment and the vehicle you drive all around town in the course of business, you want a convenient method for storing and finding those documents. When it comes to storing tax records, the Marie Kondo is not the approach you want to take.
Stay Educated on Eligible Write-Offs
You want to stay up-to-date on every possible tax deduction open to you to keep your tax bill as low as possible. This means tracking and writing off all qualifying deductibles—expenses that are ordinary, necessary, and reasonable, even if they’re minor.
Here are just a few expense categories that you can deduct as a real estate broker or agent:
Dues for associations, multiple listing services, and real estate licensing fees
Education costs for real estate trainings
Gift costs for client satisfaction, at a $25 deduction limit
Home office costs, so you can write off that filing cabinet you bought
Marketing expenses—this includes everything from fliers to website maintenance
Transportation costs—include all service costs for maintaining your work vehicle, gas, parking, and all other associated costs
Travel expenses—should you need to travel on business, be sure to include the costs for travel, meals, and hotels
For more detailed descriptions of what you exactly you can deduct with a self-employed tax status, make sure to take a look at IRS Publication 535 for business expenses.
Finally, keep an eye out for new tax legislation as it occurs. For example, 2015’s Protecting Americans from Tax Hikes (PATH) Act allows real estate agents and brokers to immediately deduct up to $25,000 on certain purchases. Limits and eligibility can vary, but staying in the know can significantly increase your tax breaks.
By keeping thorough and consistent records and staying up-to-date on eligible tax deductions, you can make the most out of your tax situation as a real estate agent or broker. These strategies will ensure you maximize your deductions, minimize your tax bill, and come away with the income you want.
For more tips on property management and real estate, contact 208.properties today.