As we wrap up 2016 and move into 2017, it’s time to be planning ahead. We love planning ahead for our future goals and success! It’s the best part of a new year.
Unfortunately, you also have to plan ahead for some less pleasant things – like taxes. Many Realtors® use the last two months of the year to make investments in their marketing and other aspects of their business that they can use as write-offs.
Tracking these expenses correctly so that they can be reported on your taxes is essential. Also, it’s good to know what types of things might trigger an IRS audit so you can avoid them.
The IRS knows that every sole proprietor wants to save as much money as possible on taxes, and will take as many write-offs as possible. However, they will be on high alert against any deductions that are unreasonable.
Trying to write off your backyard pool as a business-related health and wellness expense? Do so at your own risk. The IRS keeps an eye out for anyone who gets too creative. Just because someone – even an accountant – says you can get away with it doesn’t mean you should try.
Deductions That Seem High For Your Income
Are you trying to get your adjusted gross income to show $0 each year to avoid taxes? If you do, keep in mind that you have a more than 5 times higher chance of being audited.
If your deductions manage to wipe out your entire income, the IRS will take note. Obviously, as a first or second year Realtor® it may be entirely legitimate. But much beyond that and you’re probably getting too zealous with write-offs.
Be sure that you can back up all deductions with a receipt, so that if someone does check on it, you can prove your case quickly.
Excessive Charitable Donations
We all love giving, and none of us are immune to the reminder that charitable donations are tax deductible. You might think you’re hitting two birds with one stone, and in most cases you are.
However, keep in mind that the amount you can deduct is limited by your income and the type of charity you’re donating to. While that’s a bummer, it’s important to make sure that you don’t overreport or over-claim charitable donations.
Like all deductions, make sure you have a written statement from each charity you donate to, showing your name and donation amount.
Poorly Tracked Mileage
Realtors® write off a lot of mileage expenses, but it’s essential to track this carefully. If you report an amount of mileage that doesn’t line up proportionally with what you have reported in the past (ie, similar income but three times the mileage), it’s a red flag to the IRS.
It’s a pain to track what mileage on your car is for business and what’s for personal use, but it’s vital to avoiding an audit. When you have a careful tracking system in place, you probably won’t raise any concerns with the mileage you deduct. If you do, you’ll have the records you need to quickly resolve the concern.
Tracking expenses carefully and keeping receipts can be time-consuming, but not nearly as time-consuming as handling an audit. Work with a professional to file your taxes if you can, and if not, be sure to go over your documents thoroughly.
If you’re ready to invest in some year-end marketing, let us know! We can set you up with business cards, postcards and more! Contact us today.