Updated for the 2018 tax year
Tax season is here! For busy real estate agents who manage their own finances, it can be hard to find time (and energy) to get expenses in order. If this is you, do not push these tasks to the bottom of your priority list. Setting aside time now can save you thousands of dollars in the near future. To help kick-start your preparations, we’ve outlined several tax deductions that you should not overlook. From commissions paid to home office expenses, there are several activities that could reduce the amount owed to the IRS.
Deduction #1: Commissions Paid
Did you know that commissions you pay to other agents or employees that work with or under you are generally fully deductible business expenses? This is a deduction you should not overlook since commissions can add up quickly!
Deduction #2: Home Office
If you conduct business out of your home (or parts of it), you can take advantage of the home office deduction – unless you are deducting desk fees already (see deduction number three). Like the vehicle deduction, the home office deduction offers an option: the regular method or a simplified method. Most self-employed people find that the simplified method maximizes their deduction. However, before pursuing this deduction, know your home office has to be used exclusively for business. This means your bed; porch swing and kitchen table do not count as deductible expenses.
Deduction #3: Desk Fees
Whether you are hanging your license under a national franchise or with an independent broker, your desk fees are deductible. However, if you’re taking a deduction for brokerage desk fees, you will not be able to claim the home office deduction.
Deduction #4: Education and Training
Given rapid industry change, continuing education is a great way to stay competitive. If you take classes or training courses, like BOLD, to further your professional education and maximize your potential, you may be able to deduct your registration fees, related materials and certain travel costs. There a several requirements:
- The training and education cannot qualify you for a different trade or business.
- The training cannot be for the purpose of meeting minimum educational requirements.
- The training course/courses must maintain or improve the skill related to your field of real estate.
Deduction #5: Marketing and Advertising Expenses
Digital and online advertising costs are quickly becoming the greatest area of spending. Advertising expenses such as marketing materials, staging, photography and signage can all be deductible through the Internal Revenue Service’s advertising expense deduction. This is one of the best deductions because of its broad requirements!
Deduction #6: Standard Auto
Every mile you drive for business can be deducted from your taxes, which is great for you because between the showings, listing presentations and more, the miles can rack up fast! If you drive 10,000 miles or more per year for your real estate business, it’s likely you’ll get the greatest tax benefit by taking the standard mileage deduction. If you are a lower mileage driver, or have especially high car payments, the actual cost method may yield a higher deduction.
Deduction #7: Office Supplies and Equipment
Whether you’re taking desk fees or home-office deductions, you can still claim other office-related expenses, including: stationery, photocopies, and any other consumables needed to run your business. Other large purchases that can be expensed in full — or depreciated over a number of years — include furniture, fax machines, copiers, computers, or you telephone and associated bill. If you have a dedicated landline telephone for business, you can fully deduct this expense. If you use your cell phone only, you are eligible to deduct the business percentage of that expense.
Deduction #8: Meals
There are two situations in which you can deduct meals as a business expense: when you are travelling on business and when you are dining with clients or with other professionals for the purpose of conducting business or generating referral business. In either case, you can deduct 50 percent of your total expense, which includes tax and tip for the meal. Entertainment expenses are no longer deductible. The IRS will issue more clarification soon.
Deduction #9: Fees, Licenses, Memberships, and Insurance
Annual fees are a common cost of doing business and are deductible. In real estate, that means your state license renewal, professional memberships, and MLS dues. An important caveat with regard to professional memberships: The portion of your membership dues attributable to lobbying and political advocacy is not deductible. General business insurance and Errors and Omissions (E&O) insurance are both fully deductible business expenses. Additionally, you can deduct real estate taxes necessary for your business, but not self-employment taxes.
Deduction #10: Software and Business Tools
Any software needed to run your business is fully deductible — including lead generation subscription services such as customer-relationship management (CRM) software. Products that help you automatically track your expenses and mileage may be fully deducted as well.
Deduction #11: Gifts
All of the amazing client gifts that you gave out over the course of the year are deductible as long as you follow the IRS’s stipulations:
- You deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during the tax year.
- If you and your spouse both give gifts to the same person, you are treated as one taxpayer.
- Incidental costs (engraving, packaging, shipping) are not included in the $25 limit if they don’t add substantial value to the gift.
- Do not consider gifts of $4 or less where you have your business name permanently engraved on the item which you distribute on a regular basis.
- You have records proving the business purpose of the gift as well as details of the amount spent.
Finally, it is always important to keep in mind that to be deductible, your real estate business expenses must be directly related to your business, ordinary and necessary. For a detailed list on tax deductions, refer to IRS Publication 535 and always consult with a tax professional for any tax-related questions.