Tax Season: Real Estate Agent Deductions You Don’t Want to Miss

Real estate is a lucrative market, and if you’re an agent, you’re already well aware of the benefits. However, if you’re just starting, you may not know that taxes work differently now that you’re running your own business. Luckily, it’s not as complicated as people make it seem. While you technically have to pay more, there are many Real Estate Agent Deductions you can take out to soften the blow when tax season comes around. 

Read on to find out if you’re set up for the most optimized savings and discover deductions that can knock hundreds, if not thousands, off your tax bill. As a side note, this is not legal advice and should not be considered as such.

Setting Yourself Up for Success- Real Estate Agent Deductions

First of all, are you set up as a business entity? Real estate agents are often so laser-focused on closing their sales that they tend to put the formalities on the back burner. Of course, it’s not the end of the world, but if you haven’t set up an LLC or S-Corp by now, you should look into doing so soon. Whether you’ve been in the business for thirty years or two months, being a real estate agent means you are running a business. You should treat it like one.

Once you’re set up as a proper place of business, you can get your Employer Identification Number from the IRS and set up a business bank account. This is crucial for saving money on taxes. You should also consider setting up a separate tax account and moving 20% of your profits from every sale into it accordingly. This will make it easier to keep organized and pay your quarterly taxes on time. 

Basic Real Estate Agent Deductions: Education, Dues, and Fees

You’ve worked hard to get this far, and you’ve had to invest a lot of money in yourself to get here. Thankfully, the money you spent on continuing education, exams, MLS dues, and licensing fees are considered a business expense and can be deducted from your taxes. While this is a more obvious write-off, there are several other things that many agents don’t think to consider during tax time. Some of them may even be surprising, so you’ll want to make sure you cover your bases to save the most money.

Transportation Costs

As a real estate agent, your mode of transportation is one of your most important assets. You need it to get to appointments and showings. So you must keep it fueled up and in top condition at all times. Unfortunately, being on the road more often means higher maintenance costs, but they’re tax-deductible. Every mile you drive while working must be accounted for and tracked carefully. You should also pay for oil changes and repairs with your business account so that you can present them as business expenses. 

While mileage and maintenance are standard deductions, there are some less commonly-known expenses that you can write off as well. Agents are often surprised by how much they can save by thoroughly assessing the money spent on travel. For example, if you buy a new vehicle that you plan to use for work, you can write off the registration fees and value depreciation. Likewise, if you need to fly for a conference, that also counts.

Office Supplies and Bills

If you work in a home office, that’s a deduction. Remember that you must only use your office for work-related purposes to qualify. If you work from your kitchen table or couch, that is not a write-off. Other standard deductions for the office include desk fees, supplies, and software. If you have a team of agents working under you, some of the commissions that you pay can be deducted. It may not be much, but every expense adds up in the end.

Some of your bills may count as well. For example, if you have a home office, you can use some of your rent as deductions from your tax bill. In addition, your phone bill, tailored realtor insurance, and even health insurance can be considered deductions. As long as you separate personal bills from business ones, it’ll be a lot easier to justify them as business expenses.

Food and Gifts

You need to eat, even when you’re working. So you can write off any meals you purchased during work hours on your taxes. This includes lunches and meetings held in restaurants. If you’ve bought breakfast or refreshments for your colleagues in the office, that counts as a deduction too. 

When hosting an open house, some agents like to buy little treats to give to their prospects. Many also send a gift of appreciation to their clients after closing a sale. These gifts are deductible up to $25 and shouldn’t be skipped over during tax preparation. 

When in Doubt, Ask a CPA for Help

As a real estate agent, you incur a boatload of costs during your career. Knowing you can track those to get tax breaks provides some peace of mind. Keep in mind that the ones covered in this article are only a handful. Your business is unique to you, and you may be able to save more money if you know what to look for. Hiring a CPA may be costly, but they can make all the difference.

Taxes can be tricky if you don’t know what you’re doing, especially when you’re new to the industry. If you’re struggling to distinguish between personal and business costs, seeking the help of a licensed professional is always a great option. Many accountants keep a list of tax-deductible expenses handy for real estate agents, so all you have to do is ask.