A Tax Planning Guide for Real Estate Agents and Brokers

Wipe the sweat off your brow and stop worrying when tax time rolls around.

When you work in the real estate industry, you hardly get the chance to breathe. A lot of the work you do is out in the field—meeting with clients, checking out properties, and other such things—and even when you’re not on the frontline, there is so much to do behind the scenes. All year round, taxes seem almost surreal… until tax season rolls around. And it will, every year, because in the words of Benjamin Franklin, “in this world nothing can be said to be certain, except death and taxes.”

Unfortunately, this fact seems to slip from many real estate agents’ and brokers’ minds, and taxes are pushed off… and pushed off… and pushed off… until, “Oh no, I need to file my taxes today!” Let the stress ensue. You try to gather all the right paperwork, all the receipts from the past year, and everything else, and then throw everything together. Not only do you spend a week (or quite literally a day) beyond stressed, but the mania and rush probably cause one or more of your numbers to be incorrect. Let more stress ensue.

If you take the other route (a.k.a. preparing for tax season in a timely and thorough manner), then the weight will be lifted from your shoulders and you can rest easy. On top of that, you can ensure that your numbers are correct and, even better, that you are taking all of the tax deductions possible. Who doesn’t like to save money?

That begs the question of, “Where do I start?” We know many people find tax planning difficult and confusing, and that is exactly why we compiled these tips to help you coordinate and execute a more efficient, effective strategy.

  • Don’t be afraid to be obsessive. Okay, maybe don’t get obsessed with the details, but a little meticulousness never hurt anybody. You should track your expenses (both personal and professional—separately) on a regular basis throughout the year. If possible, keep physical and digital copies of receipts, especially for large purchases!
  • Consistency is key. Every year, you should create an annual expense report. We know it sounds a bit redundant after telling you to track all of your expenses with killer detail, but when you create expense reports, all of the important information is one place—for the whole year!
  • Be a deduction detective. Expenses have to meet three requirements to qualify for deductions: (1) They have to be ordinary in the real estate industry; (2) They must be necessary to run a real estate business; and (3) They must be reasonable. Essentially, the deductions have to make sense and cannot be outrageously expensive.
    • Do you work from home? Some brokers and agents use home offices, and you can write off home office expenses (utilities, real estate taxes, mortgage interest, insurance, etc.) as well. Keep in mind that you can only deduct the portion of those expenses that pertain to your home office!
    • What tech do you use? You can deduct business equipment costs from your taxes as well, no matter if you use them to work in an office or at home. Software falls under this category as well, so if you use QuickBooks, CRM such as Podio, Zoho or some other program, you’re in luck.
    • How do you promote your work? Costs associated with advertising and promotion also qualify! This includes hiring a marketing firm, paying for television, radio, magazine ads, online ads, forums, or virtually any form of advertising or promotion you can imagine. Examples of common platforms include BiggerPockets, Inman, Zillow, Facebook, Google, Instagram—you get the gist.
    • Have you given any gifts? Yay! You made a sale. You closed a deal. You have given a homeowner one of the happiest moments of their life (hopefully!). To show your appreciation, you give them a gift. That is actually deductible as well—within reason. Don’t expect a deduction if you gift a client a yacht!
    • Do you work with any influencers? Who doesn’t want to be in the Top 10 Real Estate Agents list? You might work with industry influencers such as Tom Ferry, Stefan Aarnio, or Katie Lance—and all related expenses to those partnerships are deductible!
    • Do you work under a broker? If you are a real estate agent, you have to get registered by the state and work under a broker once you get your license. The broker usually charges a fee (sometimes called a desk fee) to hang your license in their office, but good news! This is deductible, as well as the cost of renewing your license each year.
    • Are you a franchisee? A broker may start his or her own brokerage firm; to become a branch of a franchise (like Keller Williams, Berkshire Hathaway HomeServices, Re/Max), you need to give the franchise a pay-in or goodwill payment. While this is not deductible, the royalties that the franchise may charge you are.
    • How often do you travel for work? This is where a lot of brokers and agents miss deductions. Say it with me: Track. Your. Miles. You not only deduct travel expenses for business trips, but you may also be able to deduct for regular transportation if you use your car for work!
    • What do you do to further your career? Anything you purchase to further your career—licenses, education, certifications, seminars, etc.—is deductible. Even travel for these purposes counts!
    • Have you made any donations? Keep your receipts for any donations you make through the business. These can be written off completely so long as you have the documentation to support it.
    • Do you pay any regular dues or subscriptions? As long as your dues or subscriptions are related to business, you can deduct them. For example, this includes business magazines such as Entrepreneur, Wall Street Journal, and Business Week, Realtor Magazine, and association dues like the National Association of Realtors and National Association of Real Estate Brokers.
    • Do you cover business meals or entertainment? Again, any business-related meal goes. These have to be business dinners; don’t expect deductions for your weekend vacation in Vegas! Also, the IRS does not permit entertainment deductions anymore, so keep that in mind.
    • How do you pay health insurance? If you choose to purchase your own healthcare plan for your family, all your premiums are deductible! However, if you are given employee healthcare, then you cannot take deductions. Do your research and make the smart move on your part.
    • Are you self-employed? When you are self-employed, you have to pay a self-employment tax that is practically the equivalent of the employer and employee portions of FICA. However, you can deduct up to 50% of your self-employment tax!
    • What else can you deduct? The possibilities are seemingly endless. Do a little more digging around the internet and maybe with an accountant to find out where else you can save.
  • Pick a structure that suits you. Most real estate agents and brokers are considered sole proprietors; unfortunately, this mandates you to pay the aforementioned self-employment tax. However, you can form an S corporation to reduce your taxes to corporate-level. On top of that, you can more securely protect your assets and take the best tax advantage!
  • Never underpay your taxes. It is simple. There is no reason you should be underpaying your taxes or paying them late. The consequences far outweigh the effort it takes to get everything in order ahead of time, so make sure that you have implemented a strategy and maintain a timeline.
  • Keep the future in mind. Invest in IRA’s and plan for retirement, if that tickles your fancy. Do your research and make the choice that is most advantageous for your tax situation. When you are filing Schedule C, you might be able to invest up to 25% and claim deductions to reduce your income tax.
  • Take advantage of technology. The old pencil-and-paper method of bookkeeping has got to go. Now, with the newest advancements in technology and software, tracking your expenses has never been so easy! QuickBooks Self-Employed, for example, makes expense recording and reporting easy as 1-2-3.
  • Ask for help from outside. In the end, real estate professionals are not always accounting professionals (Some are, and kudos to those of you!). You might not have the time or the understanding to handle the finances. In that case, you should consider outsourcing accounting services; there are so many benefits that come with it, and you are putting your numbers in the hands of a pro!

We know tax season can be scary. It doesn’t have to be, though. When you and your team equip yourself with the right processes and tools, tax time will become a breeze! If you have any questions, feel free to contact us. Not only is our team comprised of professionals with a niche in real estate accounting, but we have all the tools, courses, and advice you could possibly ask for!

Gita Faust

About the Author

Gita Faust has over 30 years of accounting experience in the real estate and property management industry, Gita Faust is more than just a real estate investor; she is also popular for her work as an accountant, consultant, mentor, speaker, QuickBooks Top ProAdvisor, QuickBooks Solution Provider, member of Intuit’s Trainer/Writer Network, and, of course, author. Gita is well-known for her exemplary leadership and advisory skills. In fact, she even helped pioneer the adaptation of QuickBooks to suit the needs of professionals in real estate and property management. To share her knowledge she has written a series of courses titled Simplified Accounting Solution, which provides step-by-step guidance for those working with QuickBooks.

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