Broker
Real Estate Agent Compensation Methods
Oftentimes there will be an agent commission split with the broker in place to compensate the broker for the work they do.
Tax Tips Every Real Estate Agent Should Know
The costs of business necessities can add up quickly. So, being aware of tax tips for real estate agents can save you a significant amount of money yearly.
Madison Clifton
Jun 4, 2020
As an agent or broker you are often required to spend money, in order to make it. Before you can collect commission on a home, there are a variety of tasks you must complete. Such as marketing the property, promoting yourself to attract clients, handling your business operations, and much more. The costs of these business necessities can add up quickly. So, being aware of some tax tips for real estate agents can save you a significant amount of money every year.
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Tax Deductions to be Aware of
Of all the tax tips for real estate agents, being aware of the allowable deductions available to you, and taking full advantage of them, is the best tip you can take. Even minor costs that aren’t critical to your business, but are related to it, can be deducted.
Listed below are some of the most common agent and broker deductions.
- Marketing expenses – Included in these expenses would be open house flyers, website development and maintenance, business cards, and any other promotional materials for yourself and homes you are representing.
- Coaching, training, and educational course costs
- Licencing and renewal fees
- Business operations fees – Included in these fees would be real estate association dues, MLS dues, and brokerage desk fees. A smartphone or computer can also be deducted if you use it for any business related tasks.
- Transportation – Any and all transportation costs associated with your business can be deducted. This would include gas, auto repairs, insurance, parking, airfare, and any lodging needed for business related purposes.
- Home office expenses – A portion of many home expenses can be deduced based on square footage of the office compared to your home. Expenses such as a percentage of your mortgage, utilities, repairs needed, and insurance are all eligible for deductions.
- Gifts – Gifts given to help procure clients, solicit referrals, or maintain a relationship with them in any way can be deducted. Although be cautious with this because only $25 per client, per year, can be deducted.
It is important that you document all your business expenses so you can accurately deduct them on your tax forms. Since you are more than likely considered self-employed, and required to fill out a 1099 at the end of the year, carefully tracking your business expenses is vital in order to obtain the most deductions. Thus allowing you to keep as much of your income as possible every year.
Remember that only real estate business expenses are eligible for deductions. For a general rule all expenses deducted must be: ordinary, necessary, directly related to your business, and for a reasonable amount. To ensure you are following this rule carefully consult IRS Publications 463 and 535, or a real estate tax specialist for more specifics.
If You Can’t Organize Your Taxes Before the Deadline, File for an Extension
You have a ton on your plate every year, and ensuring your business taxes are in order can take quite a bit of time. So if you find yourself falling a little behind on making sure your taxes are in tip top shape, no need to stress. You can file for an extension, allowing you to file your taxes six months in the future.
An extension doesn’t allow you to pay your taxes at a later date though. You still must pay your best estimate of what you would owe. Then at the end of six months when you have everything in order, you can account for any adjustments.
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Consult a Professional
Keeping all the ins and outs of your real estate business taxes straight can be very difficult. Especially if you are a new agent, or if taxes just really aren’t your thing. Regardless of how comfortable you are with filing your business taxes though it is still important to consult a professional.
One mistake could be very costly for you and your business. A real estate tax specialist will help you avoid this predicament, and ensure that everything is in order. They will walk you through every tax tip for real estate agents, and even help you get your fillings straight. So consulting one is definitely in the best interest of you, and your business.