Tax Tips for Real Estate Agents

March 15, 2016 Scott Sanders
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Real estate agents play a vital role in our economy. For most people, their home is their largest purchase. Real estate agents help people navigate the vital process of buying and selling their homes.

Real estate agents are in a commission-based business. Unlike a salaried job, if you don’t sell a house, you don’t get paid. The income is variable. An agent could go several months without selling a house and then sell several in one month. The agents that are skilled and that work hard and smart can do very well, while the ones that just dabble at it may struggle.

Real estate agents generally file their business income on a Schedule C on their Form 1040. They report their income and expenses on this schedule. It is important to make sure that the agents deduct every deduction that is allowable.  They are responsible for paying in their income taxes by quarterly estimated tax payments. The variable nature of the business can make these tax amounts difficult to calculate and be able to pay without good planning and recordkeeping.

Recently I had a meeting with a prospective real estate agent client. She said that every year she would spend a couple of days getting her tax records organized so that she could give them to her accountant. I wanted to find a better way to provide her with good records and be able to track how her business is doing throughout the year, so I did some research for a solution. I found the app RealtyZam. It is a simple accounting system that is built for real estate agents. You can take pictures of bills or receipts with your phone and store them and link them to an expense. You can even link it to your bank accounts or credit card accounts. You can use it to log your mileage. You can link the income and expenses for each listing or buyer and get useful data to see how your business is doing. At the end of the year you can generate a report to give to your accountant to prepare your tax returns. You can do prepare a report by quarter to calculate your monthly estimated tax payments. You can get the app from the App Store or Google Play on your smartphone. You can try it out for free to see if it would be a good fit for you. After the trial period, it costs $10 per month. My client is using it now and likes it.

Keeping good records is vital to making sure that you are taking all the deductions that you are entitled to and in the event the IRS or your state audits your tax return.

There are many deductions that real estate agents need to make sure that they don’t miss that could reduce the amount of tax that they owe.

  1. Business mileage – Real estate agents generally have a great deal of business mileage. The business mileage rate for 2016 is 54 cents per mile. You need to keep a log of your trips, mileage and business purpose.
  2. Home office deduction – If you have a room in your home that you use exclusively as your principal place of business, you may qualify for the home office deduction. You would be able to deduct a percentage of your housing expenses.
  3. Meals and entertainment – these costs are generally 50% deductible.
  4. Advertising – Signs, websites, business cards, and other promotional items.
  5. Self-employed health insurance – As a self-employed taxpayer you can deduct the costs of purchasing health insurance for you and your family.

 

If you need tax preparation or planning or would like to discuss some of these issues further, please contact me at scott@sandersaccountingfirm.com.