“Two things in life are certain,” said Benjamin Franklin, “death and taxes.” Whether your real estate business was a smashing success last year, or you only sold part-time, you’ll have to face self-employment taxes when you file your taxes.
You should never pay taxes without taking steps to reduce your taxable income. In this article, you’ll learn about the variety of tax write-offs you can use to keep more of your hard-earned money.
Business Fees and Education
Fees are a fact of life in the real estate world, but you can pay them knowing that it’s an investment in your business and that they’re tax-deductible. The IRS also rewards anyone who wants to maintain or improve their job skills with additional tax write-offs.
Here are a few write-offs you may want to consider:
- Broker’s fees/Desk fees/Technology fees
- Continuing education classes
- Convention fees
- Membership dues for the NAR, BNI, or local chamber of commerce
- Real estate mentor or coach
- Virtual assistant salary
- Bookkeeping software like Quickbooks or Wave
Marketing and Promotion
At its core, a large part of what you do is marketing, so it’s a huge benefit for you to be able to deduct marketing and advertising expenses. Some examples include:
- Business cards
- Yard signs
- Digital marketing
- Hosting real estate-related events
- Photography for listings or promotional materials
- Web design, website hosting
- MLS fees
- Hootsuite and other social media tools
Office Equipment and Expenses
The IRS has strict criteria for home office deductions, so you may find yourself limited on deducting the cost of your office space. If you’re a full-time agent with a dedicated home office, you’re more likely to be able to use this deduction than a part-time agent working at a desk in their kitchen. You also have the option of deducting the cost of your office at your brokerage, however, you cannot deduct both the home and the workplace offices.
Other office expenses that you’ll be able to deduct include:
- Computer and monitor
- Camera, scanner, and printer
- Desk, office chair, and office furniture
- Paper, pens, pencils, and envelopes
- Staging equipment and furniture
- Cloud storage services
Gifts and Entertainment
Since the 2018 Tax Cuts and Jobs Act, entertainment expenses are no longer tax-deductible. However, business lunches are still 50% deductible. If you take a client out to lunch, be sure to keep the receipt and write down the purpose of the lunch on the receipt. In the case of an audit, you’ll need a record that this was a business expense.
Should you take the standard deduction or the itemized deduction for your car?
Well, that will depend on how many miles you put on your car in a year, whether you lease or own your car and how new it is. The IRS’s 2021 standard mileage rate for a business is 56 cents per mile, but this usually changes every year. Spend some time crunching the numbers and comparing whether you should take the standard deduction or not.
If you choose to itemize your deductions, you can also deduct ancillary transportation expenses:
- License and registration
- Tires, oil changes, and basic maintenance
- Parking and tolls
Health Insurance and Retirement
For independent contractors, because you don’t have access to an employer health insurance plan, you’re able to write off the costs that an employer normally covers. Even though you don’t have access to an employer’s 401(k) fund, you can still lower your taxable income by contributing to self-employment retirement plans. You can contribute to both types of IRAs in separate tax years as part of your retirement assets. Charles Schwab, TD Ameritrade, and Fidelity are just a few of the brokerages you can research to open your accounts.
- Premiums for health insurance
- Solo 401(k)
- Simplified Employee Pension – SEP IRA
- Traditional or Roth IRAs
The Bottom Line
The tax write-offs listed in this article are just the tip of the tax iceberg. Advanced tax strategies might include incorporating your real estate business into an LLC or an S-Corp. You should consult legal and financial professionals if you decide on this course of action. Partnering with a knowledgeable CPA will help you navigate the complexities of independent tax planning, and can ultimately save you thousands of dollars.
Disclaimer: This post was not written or reviewed by a professional financial advisor, and the suggestions should not solely be used to make financial decisions.