Like other business professionals, real estate agents must be diligent about keeping their expenses in order throughout the year in order to be prepared for tax season.
That means knowing what expenses are deductible and organizing receipts regularly so agents aren’t scrambling to get everything in order before the filing deadline.
To optimize their refund each tax season, agents can refer to the following list of items that are, are not, or are sometimes tax deductible.
Expense: commissions paid
Even though splitting commissions with other agents is part of the job, it may seem less of a hassle to do so knowing that commissions paid to other agents are deductible. Keep careful track of all those commissions paid throughout the year, as they can come in very handy during tax season.
The expense: Vehicle costs
Most real estate agents spend a lot of time in their car. Between gas, mileage, maintenance and tolls all that driving does to a car, the expenses add up. Fortunately, all of these expenses are tax deductible for the agent who uses their vehicle to travel to shows and other work-related activities, including tolls and parking fees.
The IRS offers two types of deductions for vehicle expenses: a standard mileage deduction and a deduction for all tracked automobile expenses. Claiming the standard deduction generally helps people who drive at least 10,000 miles for business and still require keeping a detailed logbook. Agents who drive fewer miles or have higher car payments can choose to cost their actual expenses, including car rental payments, car loan interest, car insurance, maintenance and repairs.
The expense: Home office
Agents who have a designated home office that’s used exclusively for their business — and that’s where they do most of their business — can add home office expenses to their tax deductions. Agents have the option of making a simplified deduction or a regular deduction, which tracks all actual expenses.
For people with larger offices or more expensive homes, the regular deduction may be more fruitful. The simplified method allows agents to deduct $5 per square foot up to $1,500.
However, agents who deduct home office expenses cannot also deduct office expenses from their brokerage, so consider which deduction may be more beneficial.
The expense: office expenses
Application fees are deductible, regardless of the size of the brokerage or whether it is a franchise, independent or not. However, they are not deductible if an agent is already claiming home office expenses.
The expense: Marketing and advertising costs
Quality marketing and advertising both pay off when it comes to selling a customer’s registration and when it comes to filing taxes. All promotional items such as business cards, flyers, signage and photography can be claimed, along with associated production costs. Likewise, digital and online advertising, including website design or hosting fees, pay-per-click ads, SEO marketing, and videos are all eligible for deductions.
The expense: training and education
Expenses associated with education, training courses, coaching and conferences specific to the real estate industry are all deductible, which is a good thing in this competitive industry where agents need to stay on their A-game. Registration fees, materials and some travel expenses may be deducted as long as the training/education does not also qualify the intern for another company, does not meet minimum education requirements and/or or helps the agent to improve in his real field of activity. domain.
The expense: Licenses, memberships, fees, insurance
Most annual fees incurred by real estate agents are deductible. Allowable deductibles include state license renewals, business memberships, MLS dues, general business and errors and omissions (E&O) insurance, property taxes necessary to run your business. Individuals who are self-employed are also entitled to an income tax deduction for half of the self-employment taxes.
Professional membership fees that are not deductible, however, are the portion of dues that goes toward lobbying and political advocacy, as noted by the National Association of Realtors (NAR).
The expense: Software
Software necessary for the proper functioning of an agent’s activities is also deductible. Items such as accounting software, lead generation software, CRMs, and any other product that can help track expenses or mileage all fall under this deductible category.
The expense: Parking tickets and land fees
Hopefully this is common sense to most officers, but just to clarify, any parking tickets or court fees incurred while at work or as a result of business activity are not deductible – the IRS will not accept that.
The expense: gifts
For the most part, customer gifts are deductible. However, there are a few caveats agents should be aware of in accordance with IRS guidelines.
For example, agents cannot deduct more than $25 of the cost of business gifts given to each person, and if an agent and their spouse give gifts to the same person, this is treated as a deduction for a taxpayer.
Additionally, incidental costs like engraving or packaging/shipping cannot be included in the $25 limit if they do not add value to the gift, and gifts costing $4 or less with the permanently affixed trade name of an agent cannot be taken into account. . In all cases, a document must be provided indicating the purpose of the donation and the amount spent.
The expense: Business lunch
Business meals are another regular expense that real estate agents can deduct. Any meals consumed while on a business trip or meals taken with clients or colleagues in order to discuss business or generate referral business are considered a deduction. For the 2022 tax year, agents may also deduct 100% of restaurant meals due to a COVID-19 policy to stimulate restaurant activity.
The expense: Office supplies and equipment
Office supplies and equipment are also deductible expenses, whether agents choose to claim office expenses or home office expenses. Supplies can include items like stationery and photocopies, and equipment can include anything from furniture to computers to phone and internet bills.
Agents who have a landline can deduct all phone charges, while agents who use their personal mobile phone for business can deduct the portion of their bill that relates to business phone use.
Agents can also choose to deduct larger purchases in this category (furniture, technology equipment, computers) in full within a year or on an amortized basis over a few years.
The expense: Health insurance
If an agent and their spouse are not eligible for an employer-sponsored health plan, their health insurance premiums paid for themselves and their family will be deductible, including medical, dental, and long-term insurance.
The expense: donations
Giving money to a charitable cause is good for the community and good for business – and it’s a deductible expense. Agents should never hesitate to donate to causes important to their community and save those receipts for tax season.
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