February 1, 2019
For real estate professionals, tax season can be tricky. From navigating tax breaks, like those in the 2017 Tax Cuts and Jobs Act, to understanding the best way to report earnings, those in the real estate field can find that filing taxes may be harder than it should be.
Most real estate agents and brokers receive income in the form of commissions from sales transactions they oversee and are not considered regular employees under federal tax guidelines. Instead, real estate professionals fall under self-employment status, which allows them to deduct many of their expenses they incur in their real estate sales or activities.
This is where having careful record keeping and understanding write-offs can come in handy as well as other tips to have a mistake-free tax season.
Track Early and Often
It’s important to start tracking items that can be deducted early and regularly. This will help to keep everything gathered and organized when it comes time to file. But what kind of things are you supposed to keep an eye on and track throughout the year? Here are a few things to start out with:
- Mileage on company vehicles
- Shipping, handling and postage materials
- Printing costs, printer ink and other office supplies
- Office space, warehouses or storage units
- Food and drink consumed during business meetings
It’s a good rule of thumb to keep a notebook or digital notes of the expenses you incur while being mobile. Also, keep track of your receipts by taking pictures or having a safely-kept manila folder for receipts.
Any necessary business expenses needed to make a profit for someone who is self-employed, like a real estate professional, can be deducted. Mileage is a big thing that real estate professionals can deduct when it’s time to file taxes. Just think of the miles you rack up going from home to home, unit to unit.
Since you most likely use the same car for business and personal use, you need to track your business mileage separately.
Advertising is another deduction that is of value to real estate professionals. From business cards to flyers, newsletters to magazine ads, there are a number of ways in which you can catch a tax deduction break during tax season. And if you operate out of a home office, you can find many different items that fall under the deduction banner, such as a portion of your utilities, homeowner insurance and additional phone lines you conduct business on.
Health Care and Professional Insurance
Health care is a major issue that can get mixed up when filing. These costs can be deducted if you do not obtain health insurance on a spouse’s policy and if your broker doesn’t provide you a plan. If health care is obtained on your own, you should have a tax-deductible premium in place.
Also, insurance for real estate professionals is something that is needed to provide peace of mind while doing your job. Showing homes, traveling with clients and keeping general safety in mind while showing homes and other units needs to be taken seriously, and having insurance tailor-made for real estate professionals is the best way to do this.
After the right insurance is set, be sure to look into possible tax scenarios where this kind of insurance can be deducted. Even if, in your scenario, it cannot be, double-checking to cover your bases is important to avoid being audited.
Individuals who count as self-employed are more likely to be audited by the IRS since it’s a little more complicated of a process. Simple mathematical mistakes can be made and if someone at the IRS catches it, you can be audited. Also, if you file with a wide array of deductions and complicated expenses, the IRS may want to look into things.
Even if you don’t expect to be audited or have never been audited before in your real estate career, it’s best to plan ahead for the idea that this could in fact happen. Being prepared means you’re ensuring that you’ve reported all income that was reported to you. Also, this is where having all your receipts, as mentioned above, will come in handy.
About Associations Liability Insurance Agency (ALIA)
The ALIA Team (part of the Riverton Insurance Agency Corporation), specializes in helping real estate professionals find the affordable and comprehensive coverage they need, without the hassle. ALIA dates its roots to 1991 with the founding of FREA, Foundation of Real Estate Associates. In 2013, ALIA was created to work with multiple insurance companies thereby broadening the portfolio of products to customers. In 2017, ALIA was purchased by Riverton Insurance Agency Corp.