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- October 17, 2024
How Real Estate Agents Can Minimize Their Tax Liabilities?
If you are a real estate agent who is looking to know more about tax deductions, you’ve landed at the right place! In this blog, we are going to explore multiple tax deductions for Real Estate Agents and how they can benefit you.
So, let’s get started.
What Tax Deductions Can Real-Estate Agents Claim?
Business Use of Vehicle
You can deduct the cost of using a vehicle for your business. For this, you can deduct the mileage driven for business purposes. For 2024, the IRS standard mileage rate is 67 cents per mile. Apart from this, you can even deduct actual vehicle expenses. This includes the money you spend on gas, maintenance, and repairs. This is particularly helpful if you have higher deductions. Make sure you keep logs of all your business mileage, dates, purposes, and destinations to claim deductions. You might need to present them if and when the IRS asks for them.
Home Office Deduction
Let’s say you are working from home as a real estate agent. That means you are using a particular part of your home or office. In such cases, you can deduct a portion of your rent, mortgage interest, utilities, insurance, and repair costs. But before you claim, make sure you are exclusively using that part for business purposes only. Otherwise, that portion will not qualify for home office deductions as per IRS rules.
Professional Fees and Education
Real Estate agents often spend money on license renewals and memberships in real-estate associations like MLS and NAR. The good news is you can claim deductions on these professional fees. Reasons? These expenses help you maintain your professional status and improve your skills. So they are eligible for deductions. So, if you pay any such fees, do not forget to claim the deductions on them.
Marketing and Advertising
Marketing expenses are fully deductible. This includes costs related to online advertising, website development, business cards, brochures, flyers, and social media marketing. It’s important to maintain receipts and detailed records of these expenses for accurate deduction claims.
Office Supplies and Equipment
You can deduct expenses for office supplies such as computers, printers, phone and internet services, stationery, and business cards. Larger purchases like furniture and office equipment can be fully deducted in the year of purchase or depreciated over several years, depending on your preference.
Travel Expenses
Business-related travel expenses, including airfare, hotel accommodations, meals, and transportation, are deductible. These expenses must be directly related to business activities such as attending conferences, meeting clients, or networking events. Keep detailed records and receipts for all business travel expenses to support your claims.
Client Entertainment
While entertainment expenses are generally not deductible, meals with clients or prospective clients are deductible at 50%. Ensure you have receipts and document the business purpose of each meal to support your deduction claims.
Cell Phone and Internet
Real estate agents can deduct a portion of their cell phone and internet bills based on the percentage of use for business purposes. Keeping detailed records of business calls and internet usage is essential to substantiate these deductions.
Insurance Premiums
Health insurance premiums for self-employed real estate agents are deductible. Additionally, you can deduct premiums for business-related insurance, such as liability insurance and errors and omissions insurance.
Retirement Contributions
If you are contributing to retirement accounts, you are doing a great job! You are securing your future. And the IRS rewards you with deductions for all these contributions. For example, contributions to retirement accounts such as SEP IRAs, SIMPLE IRAs, or solo 401(k)s are deductible. In short, these contributions give double benefits; they help you save more for retirement, and they reduce your taxable income too. So make sure you are regularly contributing to these accounts after consulting experts.
Office Maintenance and Cleaning
When you have an office, you will have to spend bucks to maintain it. So, the IRS offers deductions for cleaning and maintaining your office spaces. It doesn’t matter if it’s a separate office or a part of your home you are using as an office; all the cleaning and maintenance expenses are deductible. This includes hiring cleaning services and purchasing cleaning supplies.
Bank Fees and Loan Interest
If you are paying off business loans or credit cards with interest, you can deduct that interest from your taxable income. You can also deduct any Bank fees from your taxable income. Apart from this, any maintenance charges for maintaining business accounts can also be deducted.
Software and Subscriptions
If you are buying any CRM tools or bookkeeping software, you can claim deductions on them, too. These tools are critical for managing and operating your business. So IRS offers deductions on the same to help you to run your business easily, without worrying about taxes.
Gifts to Clients
If you are giving away gifts to your clients, you can deduct $25 per client per year. But make sure you are giving away these gifts in relation to your business. You will also have to maintain a detailed record of each gift and its cost.
Best Practices for Recordkeeping
Maintaining meticulous records is crucial for maximizing your deductions and preparing for potential audits. Here are some tips:
- Separate Finances: Keep personal and business finances separate by using dedicated bank accounts and credit cards for business expenses.
- Regular Backups: Back up your financial records regularly, both physically and digitally, to avoid data loss.
- Detailed Tracking: Use bookkeeping software or spreadsheets to track expenses individually and keep receipts for all deductible expenses.
- Quarterly Taxes: Pay estimated quarterly taxes to avoid penalties and better manage cash flow.
Working with Professionals
Consulting a tax professional can help ensure that you take advantage of all available deductions, get the best bookkeeping services, file regular sales tax returns, and stay compliant with tax laws. They can provide personalized advice and represent you in case of an audit.
By understanding and utilizing these deductions, real estate agents can significantly reduce their tax burden and keep more of their hard-earned income. Always refer to the latest IRS guidelines and consult a tax professional for the most accurate and personalized advice.
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