Realtors are some of the busiest professionals in the world. They juggle countless tasks, from marketing and networking to staging, listing, and closing deals. As if that’s not enough, they also have to keep up with their finances, filing taxes every year on top of all their other duties. If you’re a real estate professional looking for ways to maximize your tax savings, read on. Here, you will learn about common tax deductions and some important tax tips for realtors.
For self-employed individuals, like most realtors, filing taxes can be especially complicated. As sole proprietors, realtors are responsible for all aspects of their business operation including generating clients, marketing their services, and completing transactions. The world of real estate is fast-paced and competitive. As a result, realtors often face high costs in marketing and advertising to attract clients and stay competitive in the market.
Fortunately, there is a wide range of tax deductions that realtors can take advantage of. These deductions can help minimize their taxable income while maximizing their profits.
Common Tax Deductions for Realtors
As a realtor, understanding tax deductions is essential for reducing your tax liability and maximizing your revenue. Knowing what qualifies for a tax deduction can help you strategically plan your business finances. This way, you can maximize your tax savings while remaining in compliance with the IRS.
Outlined below are some common tax deductions you can take as a realtor:
1. Home Office Deduction
You can claim the home office deduction if you are a self-employed realtor and utilize a portion of your home to conduct your business. However, keep in mind that your office space should be used exclusively for business activities and on a regular basis. Hence, your couch, your workout area, or your kitchen table is non-tax deductible.
2. Marketing Costs
One of the important keys to your success as a realtor is effective marketing. The competition in the real estate industry is high. Therefore, you need to be able to promote yourself and your services in order to draw in clients and establish your presence in the community. Fortunately, the costs associated with marketing are deductible.
The IRS allows you to deduct a wide range of marketing-related expenses, such as business cards, flyers, website hosting fees and even paid advertising like Google Ads.
3. Vehicle Mileage/ Expenses
Being a realtor requires you to drive frequently. You probably put a lot of miles on your car or spend hundreds of dollars on gas each year between client meetings, property inspections, and other professional events. The vehicle deduction allows you to deduct the cost of the business use of your vehicle. You have two options for claiming this tax write-off: the standard mileage rate method and the actual expense method.
In the standard mileage rate method, the IRS allows you to deduct a standard rate per business mile you drive. For the tax year 2023, the standard mileage rate is 65.5 cents per mile. If you’re driving 10,000 miles or more for business, then you’ll likely benefit from this deduction.
However, if you have high car payments and drive fewer miles, the actual expense method could give you a larger write-off. In this method, you can deduct the actual expenses of operating your car for business purposes. This includes gas, oil changes, insurance, and repairs.
4. Education Expenses
Taking up classes or attending training to further advance your professional education is a great way to stay competitive in the industry. You can deduct educational costs such as books, supplies, tuition, and enrollment fees from your taxes. You can also deduct the costs of any real estate-related course or seminar on your tax return. This is as long as it’s not part of a degree program or activity done for leisure purposes.
5. Memberships Dues and Licenses
Realtors are often members of numerous professional organizations and trade groups.
The annual fees for your professional memberships, state license renewal, and MLS are all business expenses that you can deduct from your taxes. Note, though, that the part of your professional fees that are dedicated toward lobbying and advocacy is not tax-deductible.
As a realtor, you most certainly have various insurances to protect yourself from liability and other risks that come with your job. The cost of your insurance premiums such as business insurance, professional liability insurance, and health insurance is deductible on your tax return.
7. Professional and Legal Services
Realtors may need the help of a lawyer or other professional from time to time. You may need to engage a lawyer to assist you in negotiating a contract, a tax professional to file your taxes, or a marketing consultant to advise on advertising your business. Professional and legal fees spent are tax deductible as long as they are an ordinary and necessary expense for operating your business.
8. Other Expenses
Apart from the above-mentioned most common tax deductions for realtors, there are a few others you should be aware of. The cost of office supplies and other equipment, like computers and printers, are also tax deductible. Travel expenses incurred for business purposes such as airfare, hotel, and meals can also be written off on your tax return.
As always, you’ll need to keep track of your receipts and other records of your spending. That way, you’ll have proof of your expenses if you’re ever audited by the IRS.
As a realtor, you’re eligible for a wide range of tax deductions. From the home office deduction to car expenses and marketing costs, there are plenty of opportunities to reduce your taxable income and save money.
Make sure to keep detailed records of all your business expenses, so you can take advantage of these deductions come tax time. If you have any questions about which deductions you’re eligible for, consult with a tax professional.