Real estate agents track their earnings and expenses just like everyone else who owns a business. Like everyone else, they probably have questions and concerns about what expenses they can deduct on their tax return. We’ll talk more about those deductions below, but first a few basics about working for yourself as a real estate agent.
- Know how your business is structured. For example, is your real estate business structured as a sole proprietorship or an LCC? The business structure you choose may have legal and/or tax implications, so it’s important to know the pros and cons of each business structure.
- Remember that you’re considered self-employed for federal tax purposes as long as the following two statements are true:
- The payments you receive for the work you do are directly associated with your sales efforts (not the number of hours you worked).
- The services you provide are based on a contract that says you’re not an employee as far as federal taxes are concerned.
- The forms you’ll need for your tax return include (but aren’t limited to) Schedule C (or Schedule C-EZ) and Schedule SE (Form 1040).
- Because you’re self-employed, you must withhold and pay your own taxes (generally quarterly estimated payments if you will owe more than $1,000).
- Self-employment income must be reported if you earn at least $400 or more for the year.
Now for just some of the deductions you can take as a real estate agent:
- Car expenses: You depend on your car to get you to and from showings. You might even drive clients from house to house. Your car and the expenses related to using it for your business are a top consideration when it comes to taxes. You can take either a standard mileage deduction or itemize all your car-related expenses.
- Career/business development expenses via seminars, conferences, conventions, and the like: Whether you’re there to learn, network, or grow your business, these expenses can be deducted.
- Training or education expenses (tuition, books/software, and so on): You can take deductions for education so long as it furthers your career and your professional and business objectives.
- Annual fees and license expenses: License renewals, memberships, dues, and other business-related membership costs in support of your business objectives are deductible.
- Marketing expenses: Real estate agents rely on marketing strategy to advertise their business. The marketing and advertising can be traditional or digital. Either way, these costs can be deducted.
- Home office expenses: You have two options—regular or simplified—to claim a home office deduction. Choose the option that gives you the bigger deduction.
- Food & entertainment expenses: These costs can be deducted when traveling for business and dining while doing business. Deduct up to 50 percent of the total cost of your meal when entertaining clients.
- Software expenses: You’ll need software to manage your business. Many clients prefer to view houses online, or take virtual tours. To accommodate your client base, you’ll need the right software—and it’s deductible!
We want you to find all the deductions you qualify for—and that’s why TaxSlayer has teamed up with Hurdlr. Hurdlr has designed an app called Hurdlr for Realtors® to help you track every expense in real time—so that you miss nothing. Then, when it’s time to claim a deduction on your tax return, you’re all set.