We are fast approaching the time of year that sends many people into panic. Tax season is upon us. If you have been in the real estate business for a few years now, you probably have a good handle on your tax issues. Tending to this important part of your business responsibility is really a year long effort. The more organized and prepared you try to be during the business year the less stressful your life will be during tax season. Here are some tax tips and information for real estate professionals.
According to the IRS:
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
Common Tax Deductions for Real Estate Professionals:
Car Deductions. This is the most commonly claimed tax deduction for small businesses —it’s a no-brainer for real estate agents. Except for the drive to and from the office, all of the driving you do for your real estate business is deductible. Keep track of your mileage when driving clients to see homes or putting up signs.
Cell Phone. Calculate the percentage of time you use your phone for business and use that number to determine the deductible portion of your phone bill.
Travel. When you travel out of town for your real estate business, you can deduct airfare, taxi rides, train tickets, and other transportation at 100%. You can also deduct hotel/lodging expenses at that rate. However, only 50% of your meals and entertainment can be deducted for business travel (only if a serious business conversation took place before, during, or after the event).
Office Expenses and Supplies. Your new office chair, along with Post-it notes and printer, are tax deductible. Don’t ignore the big items either; office rent, utilities, and renter’s insurance are deductible. If you work from a home office, you will claim a home office on your taxes and your deductions may be calculated differently. To see a full list of small business office deductions, click here.
Insurance. If you have business liability insurance or insurance on your business property, it is tax deductible. Do you work from home? You can deduct a portion of your homeowner’s insurance. If you are completely self-employed, you can also deduct 100% of your health insurance premiums.
Advertising Expenses. Money you spend to promote your real estate agency is tax deductible. This includes business cards, social media advertising, website services, signs and billboards, balloons, open house costs, promotional events, and home demonstrations. These things can add up quickly so keep close track of advertising expenses.
Professional Services. Fees you pay for legal advice, consulting, and accounting, can be deducted, as long as they are directly related to your business.
Education Expenses. Whether it’s a mandatory certification or CE (real estate continuing education), online class, college course, or a subscription to a real estate magazine, you can deduct the money spent on improving yourself professionally.
There are several good apps to help you keep track of expenses and aid in your tax prep:
In addition to tracking expenses and mileage, it also allows you to record time worked. You can customize categories and sub-categories, and it easily generates expense reports. The templates in the app provide all the critical information required by your accountant.
Shoeboxed Receipt and Mileage Tracker:
This expense-tracking app lets you easily capture receipts and file them for reimbursement or as a deductible. You can even mail or ship an envelope full of receipts to the company and they'll input the receipts for you, then send you an itemized list of your expenses in a digital file. The app works with both iPhone and Android phones and is free with a membership option.
Created strictly for tracking gas mileage, the app has a mileage log and IRS rates for reimbursement. The app can store frequent trips, so a simple tap inputs that mileage.
This free app enables you to keep track of business expenses, mileage and billable time. It offers easy receipt capture and can be synced with your credit cards so that expenses can be pulled in automatically. This app will scan any receipts you have and create an expense report on the spot. Mileage expenses can also be recorded.