Tax Deductions That Real Estate Agents Sometimes Miss But Shouldn't

One of the most common professional groups that my Dallas, TX tax firm works with are realtors. As independent contractors, realtors often incur substantial out of pocket costs to run their business.

Today, I want to cover some of the costs that I typically see from realtors and some that I feel that they miss due to their process for bookkeeping and/or keeping records.   I’m not covering everything here, just areas that I usually see that get tricky or missed.  

1. Auto Costs – Realtors spend a lot of time on the road and have two alternatives for deducting auto costs: Actual Expenses or using a standard mileage rate. Both versions require tracking business miles driven. Since this is an area that can have a major impact on expenses and can be tricky to track properly, I’m going to cover it in a blog next week.
2. Meals and Entertainment – Business Meals of taking out a client continue to be deductible at 50% but with Tax Reform, Business entertainment is no longer tax deductible. This can get tricky since there are some events that can be a compbination of meals and entertainment, such as a sporting event where a business meal is eaten with the client.
3. Investing in your retirement – As a self employed individual, there are several avenues open to you to invest in your retirement while you are reducing your tax burden legally. Working with a solid Enrolled Agent or CPA and Financial Advisor, can help you meet both of these goals.
4. Advertising, Marketing Gifts, and Promotion – Realtors often have advertise, have marketing events, and give out promotional items to build their business. Make sure that you categorize these properly, understand any limitations, and maximize your tax deductions.
5. Home Office – Depending on how you use your home office, you may qualify to use part of the cost of your home including your mortgage or rent, depreciation, utilities, and upkeep. In addition to using actual expenses, there is a safe harbor option available to those who quality. For more on home office deductions, check out IRS Publication 587.

It’s important as a business owner or independent contractor to keep good records. Here are some recommendations I would give to you:

1. Keep your business transactions separate from your personal transactions. Having a separate bank account and a separate credit card account may make your life a little more complicated in the short-run, but you’ll be thankful when it’s time to complete your tax return and even more thankful if ever pulled for an IRS audit.
2. If possible, use Quicken, Quickbooks, or some other similar software to track the financial transactions of your business.
3. Keep your receipts. I recommend using online apps such as Expensify or Receipt Bank. Recently Quickbooks Online has incorporated software in QBO that allows users to easily attach invoices to the QBO transaction. In addition to the receipt, you should be aware of the business purpose and who attended events such as business meals.
4. Keep a mileage log. In the old days, that meant a paper log. Today, there are apps that will easily allow you to track your mileage. These include MileIQ, TripLog as well as tons of others that are now in the market.  

 Do you Need Help?

If you would like help from a firm that specializes in working with realtors and real estate investors, as well as helping those who have IRS problems find solutions, please give us a call at (972) 821-1991.