New Tax Saving Tips for REALTORS

Oh joy, it's tax season again. Here are several new, incredibly useful tips that every Realtor could profit by. I got these in an intense 3-hour class recently taken on Realtor Tax Stretegies.

First, on finding a good tax preparer:

1. To reduce your audit risk, use a CPA or EA (Enrolled Agent) to prepare your tax return.
2. If you use an EA, find out how they qualified for this designation. They should either have passed a Special Enrollment Examination or worked for the IRS.
3. Find out if they have other self-employed clients in general, and other Realtor clients in particular.
   
4. Ask if they attend continuing education classes about tax strategies for the self employed. Ha! What's good for the goose is good for the gander.
5. Perhaps most important of all, make sure they subscribe to a web-based tax research service. It is imperative that they have the means to keep up with the steady stream of changes and rulings that will impact your tax liability. Do not assume that they have a means to  do this -- these people are busy, and human nature being what it is, they don't always go the extra mile. By the way, it's impossible to do this without a tax research service. The amount of information to examine is overwhelming.
   

Second, on filing your return:

1. Extend your filing date. The best time to file is June, July or August when your tax professional isn't so busy (and stressed).
   
2. The IRS selects a higher percentage of returns for audit that are filed on or before April 15!

Third, on keeping adequate records:

1. If you are audited your records are your only defense. The IRS considers taxpayers guilty until proven innocent. Puh-leeze!
   
2. Your appointment book is your best record of your business activities. Ideally, make a copy of your appointments and business activities each month for your tax records.
3. Business deductions must generally be supported by both a receipt and proof of payment. Proof can be a check, credit card receipt, or -- get this -- cash payments recorded in a diary.
   
4. Generally you don't need a receipt for expenses other than lodging under $75, provided you write it down.
5. Travel, vehicle, home office and entertainement expenses have specific documentation requirements for deductibility. Basically, the requirement is that you keep a diary and write it down.

Fourth, some things about entertainment deductions you may not have known:

1. Directly-related entertainment is 50% deductible and requires a business setting (tables and chairs). Associated entertainment takes place in a non-business setting. It is also 50% deductible if it takes place either before or after directly-related entertainment.
2. Here's an example. You can either deduct directly-related or associated "Dutch-treat" entertainment. Say you and your spouse have dinner with friends John and Jane (tables and chairs = business setting). You ask for referrals and say you'll call next week. Each couple pays for their own $55 meal expense. This is directly-related expense. Then the four of you go to a movie, spending $24 for your tickets and $15 for your treats. This is associated expense. Write it all down. Save the receipts. Your $55 "Dutch-treat" dinner expense and $39 movie expenses are 50% deductible as entertainment.
   
3. Dues to a civic club are 100% deductible.
4. Saving the best for last, lunches bought for clients when showing property is not entertainment (50% deductible). This is marketing and promotion, and is 100% deductible.

Finally, you can document your annual business vs. personal mileage using a diary for only 90 days. Record your beginning and ending odometer readings every day for 90 days in a row, categorizing the miles as business vs. personal. Add up the total business and the personal miles, which can then be extrapolated to the full business year.

Hope this saves you all a bundle.