Working in real estate takes a big investment of time and money. In conducting your business, it’s not always crystal clear whether expenses are deductible, which can lead to an overpayment of taxes.
Understanding your expenses will help you deduct appropriately and avoid overpaying on your quarterly and year-end taxes.
5 Tax Deductions Every Real Estate Agent Should Know
1. Vehicle Mileage
How often are you driving between properties and appointments with potential clients? We’re guessing it’s quite a bit. If you drive 10,000 miles or more per year for your real estate business, you will most likely benefit by taking the standard mileage deduction. To qualify for the standard deduction, the IRS requires a detailed log, including date, time, mileage, and purpose of the trip. Lower mileage drivers may see a higher deduction from using the actual cost method. Chat with your accountant to determine which scenario is right for you.
2. Marketing and Advertising
To be successful in real estate takes hustle, and most real estate professionals rely heavily on marketing and advertising to gain an advantage on the competition. These expenses can be deductions for your business. This can include digital and online advertising costs, such as website design, search engine optimization, pay-per-click advertising, and video production. It’s important to track all of your marketing and advertising efforts - down to the printing of business cards - to maximize your deductions.
3. Home Office
If you have a dedicated work space in your home, you’re eligible for the home office deduction. Similar to vehicle expenses, you have the option to choose between two methods: regular or simplified. Many agents find the simplified method yields the highest returns; however, you should check with a tax professional to see if the regular method, which requires tracking actual expenses, is the best method for your situation.
4. Fees and Insurance
Whether you are working for an independent broker or a national franchise, you have the option to deduct your desk fees. However, there is a caveat; if you do deduct brokerage fees, you waive your right to claim the home office deduction. Other common annual fees, such as your license, professional members, and other dues, are also deductible. General business and other types of insurance are also considered deductible expenses.
5. Professional Development
The real estate industry is constantly changing and adapting to new technologies. To remain competitive, it’s vital for you to seek professional development. These classes or conferences, as well as the travel to attend them, are deductible expenses.
These are just a few ways to maximize deductions for your real estate business and to avoid overpayment of taxes. To get a jump on this tax season, download our Small Business Accounting Kit or contact us today!