Frequently Asked Questions> Real Estate Agent

Real Estate Agent Expenses for Taxes

What if I told you that you could turn your expenses into savings? The trick? Knowing how and which real estate agent expenses for taxes to file.

Several realtor expenses, like mileage expenses, desk fees, and office supplies, are tax-deductible, reducing the financial burden of working as statutory nonemployees.

However, simply knowing deductible expenses is not enough. You have to know how to maximize these deductions and which red flags to avoid.

With years of experience in the field and countless hours spent researching tax laws, I’ve uncovered some hidden gems that can help you maximize your deductions.

By reading this review, you’ll gain insight into common realtor expenses for taxes and practical knowledge to make the most out of your hard-earned money. So let’s dive right in!

Common Deductible Expenses

The type of deductibles agents can look forward to are hinged on their employment classification. Within the scope of tax-deductible expenses for real estate agents, five major expenses stand out.

Auto and Mileage Expenses

Let’s start with auto and mileage expenses. Agents have two options here: they can either opt for standard mileage rate deductions, which stands at 67 cents per mile for 2024 or go for actual expense deductions.

However, agents must use the standard mileage deduction in their first year of using the car for business.

To put it in perspective, an agent who drives 1,000 miles solely for business purposes could deduct $670 from their taxable income.

Marketing and Advertising Costs

Next are marketing and advertising costs. Money spent on promotional materials like flyers or online ads is also deductible. This extends to branding-related expenses, such as website maintenance and signage creation.

Office Supplies and Equipment

Office supplies and equipment represent another category of tax-deductible costs that often get overlooked despite their significance. Everything from stationery items like pens and notepads to bigger purchases such as printers or computers fall under this umbrella.

But, they only count as deductibles if they are used exclusively for business operations. If you need to buy a new laptop specifically for work, it’s a tax-deductible expense.

Desk or Home Office Expenses

The office space itself has potential deductions too. If an agent uses part of their home strictly as an office space, they’re entitled to claim housing expense deductions proportional to the area used as an office within the house.

On the other hand, those working out of brokerage firms can deduct desk-related expenditures instead. But you cannot deduct both. If you choose to deduct desk fees, you will not be eligible to deduct home office expenses.

Depreciation of Assets

Asset depreciation costs refer specifically to property or equipment used over time in business operations and, due to wear and tear lose value. Think cameras purchased explicitly for listing photos!

The good news? Their depreciation over useful life can be deducted too.

Knowing how each cost translates into potential savings is the first step toward a more profitable career as a realtor. The key lies in understanding these common expenses and how they can be used to your advantage come tax season.

Maximizing Deductions

As a real estate agent, maximizing your deductible expenses can significantly reduce your taxable income and increase your overall profits. My students often look at me with disbelief when I relay to them that even referral fees are taxable. They are a form of income, after all.

I cover the referral story in an FAQ article: Can Real Estate Agents Pay Referral Fees?

Here are some strategies and best practices to help you make the most of your deductions:

Know Your Deductions

The first step to maximizing and enjoying tax deductions is to know which deductions you qualify for. Go through the list above and note every deduction that applies to you.

Research every expense thoroughly to find the eligibility criteria used by the IRS. You can also reach out to a tax professional to help you verify your deduction qualification.

The second approach to take is rather obvious: ensure you file correctly. I know you knew that. But I couldn’t help myself. If you misfile your deductions, not only will you miss the tax savings but you could possibly have earned yourself an audit.

Documentation and Record-Keeping Best Practices

Having a grasp of which real estate expenses for taxes to deduct is not enough if you don’t have a clear activity history. Maintaining detailed records of all expenses, along with receipts and logs, is essential for substantiating your deductions.

For example, keeping a logbook that documents all client meetings, including dates, locations, and purposes, can help justify meal deductions during tax time. Or, if you also intend to deduct mileage, try employing a tracking software like Fyle or MileIQ.  

The IRS also has log forms you can use to track your deductible expenses.

Understanding Depreciation and Section 179 Deductions

Familiarizing yourself with depreciation rules and immediate expense deductions can help you maximize your deductions. For instance, under Section 179 of the Internal Revenue Code, an agent may be able to deduct the full cost of a qualifying asset in the year it’s purchased, rather than depreciating it over several years.

This frees more money for agents to reinvest in their business to aid its growth.

For a property to qualify in this section, four factors must all be true:

  • The property must be owned by you
  • Have a usage value beyond a year
  • Participate in income-producing activities
  • Have a computable lifespan

By implementing these strategies and following best practices for documentation and record-keeping, you can ensure that you’re taking full advantage of all available deductions, minimizing your tax liability, and increasing your overall profitability as a real estate agent.

Avoiding Common Mistakes

While navigating tax deductions can be a boon for your finances, it’s also essential to tread carefully and avoid common mistakes. Tax deductions are not a “head in first situation. Trust me, they require dedication and a steady hand.

One such pitfall is overlooking seemingly insignificant deductions like small office equipment. It may not seem much at the moment, but not keeping a receipt for a $20 office supply equipment run can add up over time and result in missed deduction opportunities.

Another common mistake lies in aggressive deductions without a direct business link. This is something that IRS auditors are particularly keen on spotting.

For instance, claiming 100% vehicle use for business in a dual-purpose vehicle could raise red flags, with the IRS triggering an audit. Therefore, while maximizing tax savings is important, it should always be done prudently and within legal boundaries to avoid potential issues down the line.

My advice? If you have any uncertainties seek the guidance of a tax professional before filing.

Staying Compliant and Maximizing Savings

Navigating real estate agent expenses for taxes may seem like a daunting task, but with the right knowledge and strategies in place, it can turn into an opportunity to maximize your savings. By understanding common deductible expenses, you’re already on the path to making smarter financial decisions.

Next Steps:

1. Identify: Learn which tax-deductible realtor expenses apply to you.
Record all expenses: Keep a logbook or use tracking software to document all expenses you intend to deduct.
3. Seek Professional assistance: Consult IRS guidelines or engage a tax professional if unsure about any particular expenditure’s deductibility status.
4. Be Present: Be mindful not only during the year but especially at year-end when reviewing receipts & logs before filing your taxes.

If this article has inspired you to take action toward maximizing your deductions, we’d love to hear how it went! And don’t forget to share this article with your fellow realtors.

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