Tax Tips for Licensed Real Estate Agents

Homeowners should prepare for certain tax law changes

 The information in this article is up to date through tax year 2019 (taxes filed in 2020).

Real estate agents have earnings and expenses just like everyone else who owns a business but tracking expenses as a self-employed worker can be challenging. You may have questions about what expenses you can deduct on your tax return.  

Tax Tips for Real Estate Agents

  1. 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. 
  2. You may be considered self-employed for federal tax purposes. If the following two statements are true, you will need to pay self-employment tax 
    • 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. 
  3. You’ll need to fill out Schedules C and SE (Form 1040). These forms will need to be included as part of your tax return.  
  4. You are in charge of your own withholdings. Because you’re self-employed, you must report any income you earn over $400. And when you don’t have an employer, you are the one responsible for withholding and paying your own taxes. If your tax bill will be greater than $1,000, you can and should make quarterly estimated payments throughout the year.

Real Estate Agent Tax Deductions

Because you are considered self-employed, you can take several business-related deductions. Here are just some of the deductions you can take: 

  • 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 incurred from 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 – These include seminars, conferences, conventions, and other professional development courses. Whether you’re there to learn, network, or grow your business, these expenses can be deducted. 
  • Training or education expenses – Ex. Tuition, books/software, and other course-related expenses. You can take deductions for education so long as it advances 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 a strong marketing strategy to advertise their business. Marketing and advertising can be traditional or digital. Either way, these costs can be deducted. 
  • Home office expenses – You have two options for this deduction—regular or simplified. Choose the option that gives you the bigger deduction. Read also: Did Tax Reform Change the Deductions for Your Home Office? 
  • 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! Learn about depreciating the cost of software here 

We want you to find all the deductions you qualify for—and that’s why TaxSlayer has teamed up with HurdlrHurdlr 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. 

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.

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