Real Estate Agents: It’s Dreaded Tax Season, So Get Ready

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Whether you’re a full-time or part-time real estate agent, all self-employed people (independent contractors) should track their expenses the same way a business does. While this can make filing taxes more complicated, you can simplify this process by planning ahead and tracking your deductions.

Doing your taxes doesn’t have to be stressful. Here are five amazing tax tips you should be using this tax season.

1. Save 30% to 40% of your income

Most real estate agents are considered self-employed, which means they are subject to a 15.3% tax rate and a federal rate and, sometimes, a state rate. Since the average real estate agent makes $50,000 a year, you may have to pay around 40% in taxes depending on which state you live in.

Since real estate agents have the potential to make a lot of money and it’s hard to actually plan how many homes you’ll sell, it’s best to keep 30-40% of your income for tax purposes. .

You could even move to a state with a lower income tax rate, if possible, to save more money while you build your career. For example, Tennessee, which has a sprawling real estate market, has a flat tax rate of 1%.

Remember that moving can void your license, but this is not always the case. Some states have reciprocal agreements, which will allow you to sell in more than one state.

2. Save for retirement

Realtors probably won’t receive a 401(k) from their employer, but that doesn’t mean they can’t save for retirement. All real estate agents should open an IRA and fund it each year to increase their nest egg while lowering their tax bracket (and taxable income) at the same time.

3. Take advantage of deductions

Besides pension plan contribution deductions, there are over 12 other deductions that real estate agents can take advantage of. These deductions include, but are not limited to:

  • Home office deductions (if you work from home)
  • Internet and telephone bill deductions
  • Health insurance premium deductions
  • Business travel and meal deductions
  • Deductions for the use of a vehicle
  • Interest deductions on loans/credits
  • Education deductions
  • Subscriptions and deductions for publications
  • Rent deductions (if you own a rental property)
  • Business insurance deductions
  • Deductions for start-up costs (the first year)
  • Advertising deductions

You may not be able to deduct from every category in the list, but real estate agents can easily save money on education, home office, internet and phone bills, and vehicle use. .

If you want to deduct the use of your business vehicle, you should start tracking this expense immediately. The IRS lets you calculate your deductions using the standard mileage rate (58.5 cents per mile), but you should note your annual business miles to avoid an audit.

4. Watch your gift credit

It’s common for real estate agents to give gifts to their clients, but you need to watch how much you’re spending. You can deduct donations of up to $25 per year for a single person or $50 per year for a couple. Unless you are okay with the cost of taxes, avoid buying expensive items for customers.

5. Stay on top of quarterly taxes

Self-employed people should start paying their taxes quarterly if they expect to pay $1,000 or more in taxes. Since the average US home sells for just under $400,000, you’re guaranteed to cross that threshold no matter how much commission you charge.

Unless your quarterly deposit date falls on the weekend, your due date will be:

  • April 15 (for the payment period from January 1 to March 31)
  • June 15 (for the payment period from April 1 to May 31)
  • September 15 (for the payment period from June 1 to August 31)
  • January 15 of the following year (for the payment period from September 1 to December 31)

To make sure you meet these dates, follow your bookkeeping or hire a professional accountant. This means keeping your receipts and invoices in an easy-to-access file.

The IRS won’t let you know if you need to file quarterly taxes until they’re overdue, and the IRS won’t take ignorance as an excuse. If you think you won’t be able to meet your tax due date, ask for an extension. If you miss one, pay for it immediately to avoid charges.

Ken Boyd is an accountant and financial expert at AIS-CPA.

This column does not necessarily reflect the opinion of the editorial department of RealTrends and its owners. The information in this article does not constitute legal or financial advice. Always seek the help of an accountant or CPA.

To contact the author of this story:
Ken Boyd at ken@ais-cpa.com

To contact the editor responsible for this story:
Tracey Velt at tvelt@realtrends.com

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