Seven Tax Filing Mistakes Realtors Should Avoid

By
Services for Real Estate Pros with eCommission

As the dreaded tax filing deadline comes ever closer, real estate agents find themselves in a familiar position: how to pay as little tax as possible to Uncle Sam while staying off the radar of the ever-watchful IRS.

We decided to make a list of seven tax mistakes that real estate professionals may accidentally make so that you’ll be able to avoid them when it’s time to do your own taxes!

Forgetting little (deductible) expenses
It takes a lot of discipline to keep track of the variety of business expenses you make during the year, especially if many are insignificant in amount. But small things add up over a year’s time. Before you know it, you could miss out on hundreds of dollars of tax deductible expenses. Try keeping a running log of your expenses so you don’t forget about any of those little expenses.

Inconsistent mileage deductions
For a lot of real estate agents, mileage deductions make for a sizeable tax deduction. In 2016 you’ll be able to deduct 54 cents for every mile you drove your vehicle for work. To take full advantage of this generous deduction, make sure you document all the trips you made including date and reason for the visit. Unfortunately, driving to and from the office is not included. But driving clients around to see homes is!

Going overboard with the home office
It’s something of an urban legend that putting your home office as a deductible expense immediately raises a red flag with the IRS. That being said, the rules for deducting home office expenses are strict and it’s very easy to mess up. If you are not using your home office ‘exclusively and regularly’ as your principal place of business then you are far better off leaving this expense off your tax filing.

Not deducting commission advances
Fees on commission advances from eCommission are fully tax deductible, so don’t forget about them when you file your taxes. Clients of eCommission receive a free annual summary of every commission advance fee to help them with filing taxes.

Being late
A lot of people will get into trouble with the IRS just because they are….late. The deadline this year is April 18 because April 15 falls on a Saturday. You can always ask the IRS for a delay, but you better anticipate filing for it before, not after the deadline. And you are still on the hook for making an estimate tax payment by April 18 based on your best guess of taxes owed.

Bad math
If you are not good with math and filing your taxes on paper, we recommend having somebody go over the numbers again. Tax software and/or accountants who juggle the numbers for you are a great alternative.  In 2015 the IRS caught 1,679,367 math errors in income tax returns.  If the math error caused you to pay less tax than you owed, the IRS is likely to ask that you pay up the additional amount of taxes owed plus interest.

Not correcting a mistake
You sent in your taxes and a couple of weeks later you realize you made a mistake. Sounds familiar, right? But what do you do next? What you should NOT do is let it pass and hope that this one will fall between the cracks. The IRS has a dedicated form 1040X that you can submit to fix your error.

None of the advice above is meant to be construed as tax advice. Your accountant or tax consultant is the best person to give advice on how to avoid errors on your tax return.

Comments (28)

Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

Mine are done, gone and paid, legitimate deductions and all! If the IRS audits me they have way too much time on hand!

Apr 05, 2017 07:47 AM
April Swenson
Coldwell Banker Ocean Shores Brokers - Ocean Shores, WA
CRS and Managing Broker - Ocean Shores Real Estate

Thank you for the tips. I like using His&R Block tax software to make sure.

Apr 05, 2017 08:05 AM
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Good list, at the end of the day, using tax software or an accountant it is up to you to record and keep a record of your expenses so you don't miss anything.

Apr 05, 2017 10:05 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good afternoon  Sean Whaling ,

Congratulations on a well deserved featured post! Welcome to Active Rain!! I've always taken everything to our CPA..ours is completed!! Yeah!!!

Apr 05, 2017 01:44 PM
Frank Rubi
Frank Rubi Real Estate, LLC - Metairie, LA
FrankRubiRealEstate.com

Yes, I am running late to the CPA. You have an excellent list of pointers, but I still let the CPA put it all together. 

Apr 05, 2017 05:18 PM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Many years ago when I was in college, I met and hired my first EA tax advisor who taught me it's not how much you earn but how much you keep that will determine how wealthy you could be.  He said, the more you keep of your income the more you can save and invest. That truth hasn't changed, yet, many will gladly pay the IRS instead of themselves, their own children or their favorite charity or religious organization. I find that most amazing, don't you? 

Apr 05, 2017 06:50 PM
Stavrula "Sam" Crafa, RNC,GRI, CDPE, PSA
Future Home Realty - Seminole, FL
Providing the integrity and service you deserve.

Great list but mine are done and refund in the bank. I use Tax Act for my taxes so no math errors for me. Glad it's done. 

Apr 05, 2017 07:05 PM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Sean,

With a good CPA, you have someone, who keeps up with all the changes you should look out for. So long as you give them good data, it should be right on.

Apr 05, 2017 07:23 PM
Nancy Middleton
Counselor Realty, Inc. - Excelsior, MN
Nancy Middleton, Counselor Realty, Minnetonka, MN

I've always use a CPA who keeps up on all the up-to-date changes in rules and regulations. I also have found a new accountant who helps me reconcile my statements which I record in Quicken myself and gets all my paperwork prepared for me to go over with the CPA. You get what you pay for.  It's best to have people who are knowledgeable and trustworthy. Thanks for reminders .

Apr 05, 2017 07:46 PM
Melissa Jackson
Century 21 Alliance Properties - Azle, TX
Helping You Make The Right Move

Working on my taxes now! Taking a break :-)  

Apr 05, 2017 09:53 PM
Bunny Terry
Keller Williams Santa Fe - Santa Fe, NM
A Different Kind of Realtor in the City Different

Thanks for the list. But really, where did the time go? Is it April already?

Apr 06, 2017 04:08 AM
John Wiley
Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

Yes, the Tax man cometh, but with your tips we should be able to keep him from knocking on our door.

Thanks

Apr 06, 2017 04:16 AM
Chris Lima
Atlantic Shores Realty Expertise - Port St Lucie, FL
Local or Global-Allow me to open doors for you.

Great tips. At this pace 2017 will soon be a memory!

Apr 06, 2017 04:50 AM
Brigita McKelvie, Associate Broker
Cindy Stys Equestrian and Country Properties, Ltd. - Lehigh Valley, PA
The Broker with horse sense and no horsing around

Good morning, Sean!

There are some great tips.  What I do when it comes to keeping track of mileage is I have an appointment book.  (I like having it in front of me at all times to see.)  I take it with me everywhere I go.  This is where I log in the mileage.  This way I have the mileage as well as what the appointment was and for what reason.

Brigita

Apr 06, 2017 05:37 AM
Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

I'll file the extension and thanks for the other tax tips. I've been hesitant to claim the home office but it is used exclusively for work.

Apr 06, 2017 06:05 AM
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

Hopefully as a self employed person you already understand the severe ramifications of not being honest in filing your taxes. This applies to all industries, go back to work people...

Apr 06, 2017 07:04 AM
Donna & Larry Johnson
Keller Williams Real Estate - West Chester, PA
Chester & Delaware County

Great list but always a good idea to hire a true professional. Lets practice what we preach and work with a professional.

Apr 06, 2017 07:11 AM
Cynthia Zimmerman "Major Z"
New Home Network Realty LLC - Cape Coral, FL
Military Relocation Professional/veterans

Great advice! I'm getting ready to put together our taxes and this was great information. Thanks for posting.

Apr 06, 2017 01:11 PM
Kathleen Luiten
Resort and Second-Home Specialist - Princeville, HI
Kauai Luxury Ocean Home Sales

I use my smartphone to record all the "little things" as soon as I get the receipt. Digital copy is immediately filed for my records.

Apr 06, 2017 04:58 PM
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Great advice and tips for us.  Thanks for sharing how to fix a mistake.  You never know! 

Apr 14, 2017 05:19 PM