Whether you’re planning to go ahead and file your 2019 federal income tax return on the July 15 deadline or you, like me, are planning to file yet another extension (summer is busy!) you shouldn’t get caught unprepared when you’re filling out forms.
Most Realtors are independent contractors, which makes filing income taxes more complicated than traditional W-2 employees. And considering all of the expenses that experienced salespeople shoulder, there are a lot of important deductions and strategies you should know about so you can keep as much of your hard-earned money in your account and not Uncle Sam’s.
Did you know that those cool YETI Ramblers you had engraved and gave out to clients at closing are deductible on your 2019 federal income tax return? They are!
Realtors can deduct the value of individual gifts to clients up to $25 per individual, according to IRS rules. As always, it’s important to document the value of the gift, as well as the purpose.
Marketing And Advertising
Were you one of the extremely smart real estate professionals that advertised on CandysDirt.com or SecondShelters.com during 2019 (or even now!)? The money spent on your advertising campaign can be deducted along with other marketing costs, such as staging, photography, and print materials (business cards and pamphlets, and even direct mail).
This is a clutch deduction for Realtors because so much of what agents do falls into the category of marketing. Of course, documentation is key here so bring your receipts!
Do you pay a desk fee to your brokerage? Do you have a home office? Did you spend money on office supplies? Did you buy office software and pay license fees for CRM programs? All of these things are deductible according to IRS rules for your 2019 federal income tax return.
Important note: If you plan to use the home office deduction, you may not be able to deduct your desk fees. Typically, home office deductions require that you conduct business solely from the home office in order to deduct the full amount.
Naturally, you’ll want to make sure you check with IRS Publication 535 to make sure you’re following the rules to the letter.
Professional Memberships, License Fees, and Insurance
Your annual real estate license renewal fee is deductible, as are the fees and dues paid to your local board or association of Realtors, as well as national-level membership fees. Most Realtors carry insurance (at least the good ones do!) and the fees and premiums associated with insurance are deductible as well.
Commissions Paid to Agents and Employees
If you paid commissions to another agent or team member, those commissions are deductible! Commissions paid, when deducted, can add up fast and can help to significantly lower your overall tax obligation.
Automobile and Travel
A Realtor’s car is really their main office, and the miles covered during the course of business are deductible on your 2019 federal income tax return. However, there are two ways to deduct mileage: the standard deduction or actual cost. For those who regularly traverse the Metroplex in their office on wheels, the actual cost might net them the greatest deduction. As always, excellent record-keeping is key here!
Meals and Entertainment
When conducting consultations and listing presentations, do you do business over a meal or coffee? Costs associated with entertaining potential clients can be deducted.
Training and Education
No matter how much Realtors wish they could deduct the cost associated with required continuing education credits, they can’t. However, training and education that’s not mandated absolutely can be deducted according to IRS rules regarding your 2019 federal income tax return. Be sure to keep receipts and records regarding the nature of the training.
Do you have any tax tips? Tell us in the comments!