Tax deductions are an important part of every business strategy.
Reducing tax liability is especially important for real estate businesses. With agents depending on commissions that are substantial, but not entirely predictable, for revenue, finding ways to deduct expenses and lower your taxable income means smoother operations and more money available to fuel your business.
Let’s look at some common-sense tax advice that can help you keep your payments at tax time low. Just remember to review any major decisions related to deductions and tax liability with your accountant or a similar professional before acting.
Which business expenses are tax-deductible for brokers and
There is a wide range of business expenses that can be partially or fully deducted from your taxes. They include common concerns like using a personal or business vehicle to travel to and from listings, the use of a business or home office, and equipment and supplies, among many others.
A few common deductions to keep in mind:
- Outreach, awareness and marketing: Real estate professionals can fully deduct the cost of signage and advertisements they’ve placed for listings and open houses, as well as professional websites, business cards and similar collateral, according to TurboTax.
- Driving and car use: Even a vehicle that’s split between personal and business use can still help you bring in a tax deduction. The simplest way to earn this deduction is by tracking the miles you put on your car while operating your business and using the standard mileage rate provided each year by the IRS. Just remember to avoid counting the mileage between your home and a separate office, if applicable.
- Dues for professional associations: If you’re a member of a local business group or have a professional membership in a group designed for real estate professionals, you can likely deduct the cost from your taxes.
Legal advice website Nolo offered a top 10 list of real estate agent tax deductions, highlighting a foundational principle of these tax write-offs: You must have an active business and use the assets, and any other costs you’ve written off, for it.
Although deductions like vehicle mileage and the use of various assets can be tracked for business versus personal usage and deducted accordingly, you need to maintain accurate records. As a self-employed person, and especially if you use a home office, it’s best to be vigilant and only take the deductions that you can prove are tied to the operation of your real estate business.
Can a real estate agent deduct car payments?
You already know you can deduct mileage based on a standard rate or the overall cost of operating and maintaining your car for business use. But can you deduct car payments? The answer is yes. Whether you choose to buy or lease a car, there are deductions available.
FitSmallBusiness explained that deductions for a car you purchased outright are based on depreciation, while a lease allows you to deduct most of the monthly payment. However, leases have various limitations and potential additional costs, like if you exceed the mileage limit. Keep these factors in mind and turn to a professional if you need guidance for your specific situation and business structure.
Did tax reform change the deductions for your home office?
A home office deduction is a common write-off used by real estate agents who operate out of their own residences. Tax code changes made in 2018 restricted home office deductions for employees of businesses, but didn’t change things for self-employed professionals who file as a sole proprietor, TaxAct explained.
If you meet this qualification, you can either track and deduct specific expenses related exclusively to operating your business, or you can claim a deduction of $5 per square foot of space that’s used solely as an office area. The limit for this simplified deduction is 300 square feet of space in all.
What rate is commission taxed at?
The short answer is that real estate commission isn’t taxed at a singular rate.
Commission is the major form of income for real estate agents. Aceable Agent, a real estate agent education and services provider, highlighted the different income-based tax brackets, as well as many other helpful tax tips for real estate professionals. Depending on how much you earn and the tax deductions and credits you qualify for, your commission can be taxed at many different rates. Another major factor that influences your tax obligation is your filing status – rates differ depending on whether you file as single, head of household, married and filing separately or married and filing jointly.
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