“I had an appointment pop up.” That’s the exact message I received at 11:23p.m. on Tuesday from a long-time customer and close friend of mine who has supported his family as a real estate professional for the last twenty years. How many times have you had to send a message like that?
If you have been involved with real estate transactions, then the chances are pretty good that you have delivered a similar, if not verbatim e-mail, text or voicemail; foregoing your intended activity to cater the needs of a prospective buyer or demonstrate your responsiveness and dedication to the new listing. With the extremely low housing inventory and high demand in our greater Seattle area, I’ve witnessed these messages many times from customers of our real estate focused practice.
The sacrifices you make - family, financial and otherwise are the opportunity cost of not taking that appointment, last minute call, reprint and delivery to ensure a successful closing. In return, you are compensated by your share of a commission for seeing the transaction close successfully. If you work so hard and give up so much of yourself to get the deal, then why do so many real estate professionals willfully give up their final cut to taxes they do not have to pay?
The last transaction that I saw the IRS be a part of a successful closing was when they were on the receiving end of a federal tax lien pay-off. They took no part in the courting, staging, showings, negotiations or document preparation. They did not even send an appreciation gift to the buyer or seller for clearing the outstanding balance before the collection statute. Again, why do real estate professionals pay more tax than they must?
A lot of real estate professionals have their tax returns prepared by other professionals (CPAs, EAs, CAs, JDs, and other alphabet credentials). Some may even believe they are receiving all the available deductions for which they qualify. The difference is, putting your historical numbers in boxes on the right government form is tax return preparation. “You owe $WAY,TOOMUCH.00” is commonly how the typical tax return preparation service experience concludes. Sound familiar?
Seeking out opportunities for you to pay less tax is tax planning. “Here’s an idea that I think will save you money” is an example of what we say to our customers when providing proactive tax planning. The preparation of the tax return is really a summary of your previous decisions assembled and disclosed on another government form. Granted, they are not as flashy as the MLS disclosures, but standardized government forms, nonetheless.
The strategies for you to pay less tax also help achieve other aspirations in your life – funding medical, education, lifestyle activities and providing financial assistance to family members is possible as part of a comprehensive tax plan. Try to think of it this way, every economic decision will have a tax consequence. If you plan appropriately ahead of time, you may be able to achieve a more favorable consequence. In your real estate transaction history, how many opportunities did you have to add value before closing rather than after?
My friend was not canceling our annual, holiday season, youth soccer alum pilgrimage to watch the Tacoma Stars from a box filled with men now in their mid to late 40s reliving glory days, that was already off the table due to the virus pandemic. He was deferring our morning meeting until the following afternoon in which we were going to process his final payroll for the year and confirm reimbursable expenses were accounted for prior to year-end. In his case, the opportunity cost of taking that appointment could be mitigated by us rescheduling for later that day. Now, had it been the canceling of the soccer match reunion, that would be another story and there may have been jerseys to burn.
As real estate professionals, you provide valuable services, sharing knowledge you have invested significant efforts to obtain. The sacrifices you make to earn your commissions are also valuable and should not be discounted by overpaying your taxes. Whether you choose to accept the next appointment or let it pass, the choice is yours. The choice to continue paying more tax than you must is also yours to make.
To learn more legal, tax-saving strategies for business owners, or get help with an IRS tax problem, contact me at (360) 474-5892 or e-mail me at tate@ensigncpa.com.
Tate Ensign, CPA
T.S. Ensign, CPA & Company, Inc.
P.O. Box 956
Ravensdale, WA 98038
(360) 474-5892
Fax (360) 474-5825
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