Real estate agents and brokers are considered self-employed. They receive income as commissions when a sales transaction is made. They are not considered employees under the federal tax guidelines, but are taken as sole proprietors. The status of a real estate agent remains the same even if they are working for a real estate brokerage firm as a broker or agent. The self-employed status of real estate brokers and agents allows them to deduct a number of expenses that are incurred in the property management or the real estate service you provide your clients. As a real estate agent, you should be aware of the write-offs you are eligible of that are a key to making the best use of the deduction you are entitled to. You need to maintain a careful record and should have sound knowledge of the tax system and procedures to make sure you are not giving any extra money as taxes.
To help all the real estate agents out there who are going to file for taxes for the first time, or are looking for sound advice for the procedure, here are some tax tips for realtors that will help you file for taxes the right way and make efficient use of deductions you are given by the IRS. Review these tax tips for realtors before you file for taxes.
Tax Tips for Realtors – Preparation
1. Use a Payroll Software
Filing your taxes the wrong way leads to penalties by the IRS and it is one of the main reasons a number of businesses are fined each year. The main reason of these heavy penalties is the fact that payroll is handled by personnel and not by software. There are many chances of mistakes when it comes to entering and calculating everything on a spreadsheet. The ideal thing to do is to invest in good payroll software. This will help you avoid any extra penalties by the IRS. This is one of the best tax tips for realtors will help you go a long way in handling taxes the right way.
2. Keep Your Personal and Professional Finances Separate
Another tax tip for the realtors is to keep your personal and professional finances separate from one another. Commingling the personal and business finances is one of the biggest mistakes made by realtors. Since real estate is more of being self-employed, you are more at risk of mixing these two expenses which will lead to loss in deductions that you could have availed otherwise. It is ideal to keep a separate bank account and credit card for your real estate business and a separate one for your personal finances. You will find it easier to organize your taxes this way. And, you will have all the documents needed to show in case the IRS audits you any time during the tax period.
3. Be Prepared and Organized
If you are organized and prepared for the taxing process and have all the documents you need with you, the tax procedure will not be much of a problem for you. It is only taxing for those who have not prepared for the process. A great tax tip for realtors is to maintain a daily, weekly or monthly routine to keep organized all the documents that will help you in the grueling season of taxation. Here are some tips to organize yourself for the tax season:
- You can remain trouble free in the tax season if you keep all your paperwork in one place through a proper filing system. Buy some expendable folders for each month of the year and keep all the documents of the respective month in this folder. From deposit slips, to ATM withdrawals and receipts, keep all the documents in one place so they are in a hand’s access when needed.
- It is important not to leave all the paperwork till the end of the year when the taxes are due. It takes just a few hours to organize all the paperwork each month. This will save you the trouble of doing everything in a single setting. Also make sure you reconcile your bank accounts and credit cards with the receipts and deposit slips you have.
4. Keep a Track of Revenue and Expenses
Using an accounting software is one of the best tax tips for realtors anybody will give you. All you need to do is input all the data in the software, including all the revenues and expenses. The software will create the financial statements for you and you can then file the taxes on your own to can send them over to a tax professional to do it for you.
Best Tax Tips for Realtors – Tips for Business Tax Deductions
As a real estate agent, the IRS gives you some leverage when it comes to tax. These leverages are in the form of tax deductions that are applicable on all the expenses incurred by you in the business. Expenses include all the costs of doing a business. IRS allows deduction on all ordinary and necessary expenses. These are defined below.
- Necessary Expenses: An expense helpful and appropriate for your real estate business
- Ordinary Expense: An expense considered common or accepted in the real estate business
There are some tax deductions available to you as a real estate agent or broker. Here is a breakdown of these deductions and how they can be availed to the maximum.
5. Deductions for using Your Home as Office
If you use your house or a part of it to run your real estate business, you are entitled to deduct a part of your expenses from the total. Mortgage interest, utilities and insurance, all can be deducted. You can make use of this deduction whether you are a renter or a homeowner. This can help you bring the tax amount down. This is one of the best tax tips for realtors anybody will give you.
6. Deduction for your Car Expense
Do you use your personal car for your real estate business as well? If yes, you can deduct your car expenses from the total business expenses that you have incurred for the sake of your real estate business using your car. You can make automobile deductions using one of the following methods.
- Standard Mileage Rate: Multiply the total number of miles you have driven the car for your real estate business purpose by the standard mileage rate set for the year.
- Actual Car Expense: The actual car expenses such as the insurance, the repairs and gas can be deducted. However, if you are using your car for your real estate business, as well as personal purposes, you will have to first calculate the percentage it was used for your real estate business purposes add then find out the car expenses that were taken up for your real estate business. For example, if you drove your car for 15,000 miles and 6,000 miles of these were for business purpose, divide 6,000 by 15,000, which gives 40%. This is the deduction you can make for your real estate business as car expense.
7. Deductions for Accounting Fees
It is important to keep in mind that the accounting fee is tax deductible. When you are doing your taxes, make sure you write off the accounting expenses incurred on your real estate business. The cost of accountant in your real estate business will help you bring down the total taxable income.
8. Deductions for Advertising
A good thing about paying your advertising costs through a credit card instead of a debit card is that you can get a 2% cash back and incur zero interest if you pay all the balance at the end of each month of the year.
9. Banking Fees
If your bank charges you some fee, you can write them off when it comes to tax.
10. Deductions for Lunch
As is the case with other businesses, as a real estate agent or broker, you are also entitled to deductions for as many as 50% that you have incurred for lunch related to your business. If you take your client out for lunch, or give your employees a free lunch from your side, you can deduct it from the total taxable income. However, it is important to be sure that these lunches are not too lavish. The key tax tip for realtors is to treat this as they would treat their personal funds. If you are not going to spend your personal funds lunching in a very expensive restaurant, do not make the expense from your business funds as well.
11. Hire Someone if you can’t do it yourself
If you are not sure you will be able to handle all the minute details needed to file for the income tax, the best tip for realtors is to hire someone to do it for you. It is important to keep in mind, as mentioned earlier, that even some minor mistakes made when filing for taxes as a real estate agent can lead to hefty penalties that you will not like to be levied upon you. Therefore, it is better to hire someone to do your taxes for you rather than risking it by doing it yourself when you do not know much about how to deal with it.
Best Tax Tips for Realtors – Tips for Filing the Taxes
There are many things to take care of when filing the taxes as a real estate agent or broker. Here are the best tax tips for realtors that they should make use of when filing their taxes.
12. E-Filing is the best option
Taxes work on deadlines and if you miss the deadline for filing the taxes, you will have to pay a separate penalty for it. Therefore, you need to make sure that you tax filing is received by the IRS in time. To do this, the best thing to do is to file your taxes electronically. While you can also mail them to the IRS, but it will take a lot of time and you will also not be sure whether or not it has been received by the IRS. When you file the taxes electronically, you get a code as soon as it is received by the IRS, and it is usually instant. This confirmation code gives you peace of mind that you have filed your taxes within the deadline and you will at least not have to pay money in the penalties for not being able to submit it in time.
13. Don’t miss the deadline
No matter what happens, a tax tip for realtors is to make sure you do not miss the deadline for filing the taxes. There are many penalties you will have to bear in case you miss the deadline and you surely would not like that. In addition to the interest, here are some penalties that may be effective on you if you miss the deadline for filing your taxes.
- Not filing in time: You will have to pay as much as $135-$205 in case you fail to file for the taxes in time
- Not Paying the Taxes on time: This penalty is levied in case you fail to pay the taxes in time. Until you pay the amount in full, it will continue accruing.
Even if you do not have the money to pay the taxes right now, it is still advised that you at least file your taxes in time. This will help you forego the penalty that will be levied for late filing. As a real estate agent or broker, you will not be too happy to pay around 200 dollars as the late fees.
Filing taxes as a real estate agent or broker may be grueling task, but only if you do not have your homework done. As advised above, you should start preparing for taxes from the beginning of the year and not leave it all for the year end. You need to keep the above mentioned tax tips for realtors in mind when the year-end taxation time is near. It is also advised that you take the services of an expert for filing your taxes for the real estate business you have to avoid mistakes leading to hefty penalties. Hiring an experienced tax professional will ensure that all the minute details are taken care of and are handled the professional way. You will also be able to save money that you may have to pay in penalties otherwise in case you fail to file the tax properly or make a mistake in the process.
As a realtor, it is important to prepare for the tax periods as early as the new year begins. According to the IRS, any expense that is normal and necessary can be deducted from the taxable money. Since real estate agents and brokers are considered as self employed, you can write off many business expenses to reduce the taxable income. It is important to keep in mind the above mentioned tax tips for realtors which can be helpful for you in the grueling tax season. If you think you won’t be able to do it on your own, it is better not to take any risks as even a small mistake in filing these taxes can lead to hefty penalties. It is also important to make sure that you do not miss the deadline for filing the taxes as it may also lead to penalties.
As a real estate agent or broker, you should start preparing for filing your taxes and the best thing to do is to keep yourself organized and prepared from the beginning of a new year. Keep all the documents for each month properly organized as it will help you file for the tax in an easy way. You will also not have to spend time looking for the receipts and documents when you are running out of time. As a real estate agent or broker, you cannot afford paying hundreds of dollars in penalties just by committing some common and small mistake when filing tax returns. With the above-mentioned tips, you will be able to not only make the tax process a breeze, but will also be able to save a lot when it comes to penalties.