Don't Fall Behind: Specialist Tax Planning for Real Estate Agents

As we all know, it’s common for real estate agents with busy schedules, like yourself, to neglect financial management for their businesses. For the bigger part, you spend your time and energy generating new leads while also responding to the demands of your clients, associates, and brokerages.

Learning to manage your accounting and tax preparation and use complicated financial tools can seem like a complex and overwhelming task in addition to all these responsibilities.

It is undeniably time-consuming to keep track of expense deductions, and you might not know how to handle the accounting yourself or lack the time or energy to push through the learning phase.

Even if you use “Spreadsheet Accounting,” managing and maintaining your business still requires a lot of time and work. Yet, to succeed as a real estate investor, you need estate planning for your rental property.

Pearl Lemon Accountants can help with that. We’re here to relieve your concerns about financial management.

To help relieve your stress when tax season comes around, our staff is prepared to streamline your accounting, save you money, and reduce your workload.

Contact Us to learn more about what we can do for you.

Tax Planning Strategies for Real Estate Agents

Every real estate agent should know that their commission is not their salary. It is business income that must pay for both your salary and other costs.

You can enjoy large tax savings and benefit more from each hard-earned commission check by keeping detailed cost records, selecting a business structure that minimizes tax and personal obligation, and taking advantage of the full spectrum of allowable deductions.

Here are some tips to help you get the most out of your tax planning:

Maintain Accurate Expense Records

Keep all copies of receipts for any expenses that may be tax deductible. Local real estate board dues, license-renewal and broker classes, desk fees, car expenditures, cell phone, advertising and marketing, errors and omissions insurance not paid by your broker, and the price of company supplies and equipment not given by your broker are a few examples. You can use deductions for anything, including meals, entertainment, and closing gifts.

Always maintain separate credit card and bank accounts for "Business" and "Personal" spending

Combining your personal and business finances can go wrong, particularly if you are audited. It will be easier to monitor how well your business is doing, manage transaction records, file your taxes, and claim deductions for business costs if you keep your accounts separate. You also make it more difficult for any corporate creditors to make claims against your personal assets

Prepare For Retirement

All real estate agents should contribute everything they can to their retirement plans. Talk to our tax experts to determine which retirement plan will most benefit you.

Maintain regular accounting and bookkeeping, not just during tax season!

Make an effort to update your financial information regularly. When you need to complete your tax return, it will be quicker and less expensive if you can remember the specifics of each transaction. This makes financial planning for you utterly simple.

Create an S corporation

Like most real estate agents, you likely file your taxes as a sole proprietor and must pay a sizable self-employment tax as a result. By allowing you to “split salary and dividends,” an S corporation can lower your self-employment tax. Additionally, an S corporation can safeguard personal assets that a sole proprietorship leaves exposed.

Tax Deductions You Ought To Know About As A Real Estate Agent

We’ve included a few tax deductions that you should not miss to help you get your planning underway. Several actions could lower the amount payable to the IRS, including commission payments and home office costs. Let’s get into it:

Paid Commissions

Any commissions you give to agents or workers who collaborate with you or report to you are often deductible business costs. You shouldn’t ignore this deduction because commissions can build up rapidly!

In-home office

You are eligible for the home office deduction if you run your business out of your house (or particular areas). The standard approach and a streamlined method are the two alternatives for the home office deduction. According to most self-employed people, this way optimizes their deduction.

Be aware that if you choose this option, your home office must be used regularly and solely for business purposes. Your bed, porch swing, and kitchen table do not qualify as deductible costs as a result.

Desk costs

Your desk fees are tax deductible regardless of whether you are hanging your license with an individual broker or a national franchise. (Remember, though, that you cannot claim the home office deduction if you also take the deduction for brokerage desk costs.)

Training and Education

Given the speed of industrial change, ongoing education is an excellent strategy for maintaining competitiveness. You are qualified to deduct your registration fees, associated materials, and some travel expenses if you enrol in training courses to advance your professional education and maximize your potential. However, there are a few conditions:

Your education and training cannot entitle you to employment in a different line of work.
The training cannot be done to fulfil the minimum requirements for schooling.
The training course or courses must maintain or advance your real estate-related skills.

Expenses for marketing and advertising

The largest portion of expenditure is quickly moving toward digital and internet advertising prices. Through the IRS’s advertising expense deduction, costs associated with advertising, including marketing materials, staging, photography, and signs, may all be deducted. Due to its flexible conditions, this deduction is among the best!

Standard Auto

Miles can add up quickly between showings, listing presentations, and other activities. Every mile you travel for work-related purposes can be deducted from your taxes using the usual vehicle deduction. Take the standard mileage deduction to earn the most tax break if you drive 10,000 or more yearly for your real estate business. However, the actual cost could be higher if you drive less frequently or have hefty auto payments.

Office products and furniture

You can still deduct office-related costs like stationery, photocopying, and any other consumables required to run your business, even when taking desk fees or home-office deductions. You can deduct the entire cost of your furniture, fax machines, copiers, computers, or your phone (and related bill) from your expenses.

You may fully deduct this cost if you have a landline phone specifically for business use. You can also write off the portion of your cell phone bill related to your business, even if you only use it occasionally.

Meals

You can write off meals as a business expense in two situations: when you travel for work-related reasons and when you eat out with clients or other businesspeople to conduct business or get referrals.

Fees, Memberships, Licenses, and Insurance

Annual fees are typical operating expenses that can be deducted. That pertains to renewing your state real estate license, MLS dues, and professional memberships. Regarding professional memberships, it’s crucial to note that the percentage of your dues related to lobbying and political activity are not tax deductible.

Errors and omissions (E&O) and general business insurance qualify as completely deductible business costs. Real estate taxes paid for your firm can also be written off, and self-employed people can deduct half of their self-employment taxes from their income tax.

Business Tools and Software

Any software required to run your business, including lead-generation subscription services like customer relationship management (CRM) software, is deductible. You may also fully deduct items that assist you in keeping track of your spending and miles.

Gifts

As long as you comply with the IRS requirements, all of the amazing client gifts you handed away throughout the year are deductible.

Note: You and your spouse are considered one taxpayer if you both donate gifts to the same person.

Medical Insurance

As long as you and your spouse are not qualified for an employer-sponsored health plan, the health insurance premiums you pay for your family could be deductible. This covers long-term protection, dental care, and health insurance.

Lastly, remember that for your real estate business expenses to be deducted, they must be directly tied to your business. Check with your own legal or financial advisor for a complete list of tax deductions and confirm all information to your satisfaction.

Our Tax Planning For Real Estate Agents Are Here To Help You

The real estate industry is fantastic to work in. You enjoy the independence and adaptability of an entrepreneur, and you frequently set your own hours. However, because most of a real estate agent or broker’s income comes from commission, real estate agents and brokers are therefore not formally regarded as “employees” under federal tax regulations but as self-employed sole proprietors.

You will need to calculate your taxes, including costs and deductions, on your own, even if you are probably still employed by a real company. This can be challenging if you are not well-versed in tax planning. You already work full-time, so adding accounting to your must-do list is overwhelming.

Our licensed tax coaches and experienced CPAs at Pearl Lemon Accountants are readily available to assist you in improving your preparation. We collaborate with real estate agents and brokers to optimize revenues while lowering taxable income. We work hard to help you lawfully reduce your tax bill so you can enjoy more of your hard-earned money.

To learn more, or to schedule a consultation, call us today.

FAQs

How can I generate new leads as a new real estate agent?

Like any other business, you must grow your network and nurture relationships as a real estate agent. Here’s what you can do as a new real estate agent to obtain more leads.

Start with People You Know
Reach Out to Friends and Family
Get Active on Social Media
Research Instagram Hashtags
Reach Out to FSBOs and FRBOs
Host an Open House
Give Cold-Calling a Shot

Is tax planning really necessary?

The money you make as a real estate agent is unpredictable. Real estate agents, particularly inexperienced ones, must carefully manage their income by managing expenses. In addition, here are some additional reasons why you should hire a tax planning professional:

Save time.
Get regular updates and fewer mistakes.
It helps with filing in the future.
Professional assistance and guidance.
Effortless work.
Improved financial planning
Save money.
Setup for the audit
Have peace of mind

How much do your services cost?

We can’t estimate precisely because most of our clients need specialized services. To get a quote, reach out to our team with your query, and a real estate professional will be able to estimate what you need.

When you allow us to keep track of your finances, you give yourself more time to do your work and please more clients. It's a win-win situation for everyone. Aside from that, you'll also gain financial stability because your assets and liabilities are managed well enough not to cause any trouble for you in the future.

So let our experts work for you, and you won't regret it even a bit.

Book a call today to get started.

Let’s Talk Accountancy.

Get in touch today, so we can discuss your accountancy needs, your business, your hopes for the future and just how Pearl Lemon Accountants can help you.