Realtors typically earn money based on commissions rather than hours worked. The Internal Revenue Service says that makes realtors self-employed, so they report deductible expenses on Schedule C along with their income. Realtors are real-estate agents who belong to the National Association of Realtors, so the same tax rules apply to both Realtors and unaffiliated agents.
Real Estate Licenses
Realtors and agents must have a state license to sell real estate. Your license fees are a tax write-off. If you have to take continuing education to keep your license, the course costs are deductible too. That includes the cost of driving to class, using the same deduction rules as other business travel.
If you take courses to improve your skills beyond licensing requirements or to qualify for particular certifications, those expenses are deductible. However, if you're just starting in real estate, any courses you take to prepare for licensing are nondeductible. The IRS specifically says that education for a new career is not a write-off.
Conferences and Groups
If you pay dues to join NAR or other professional groups or a business networking organization such as the local Chamber of Commerce, those costs are deductible. It has to be a professional organization. Even if your professional associates hang out at the same country club, that doesn't make club dues a business write-off.
Expenses for the business use of your car are deductible. That does not include commuting to your office from home, but trips from your office to meet clients, attend meetings or show homes are all valid deductions. If you work from a home office, business trips that start from home are deductible. You have two ways to take the write-off:
- Actual costs: Keep records of repairs, maintenance, gas and other expenses. If, say, 60 percent of your driving is for business, 60 percent of your costs are deductible.
- Mileage: The IRS lets you take a simple per-mile deduction, and the agency adjusts the amount each year to account for inflation. You still have to keep records of which trips are for business — IRS Publication 463 covers this — but you won't have to save receipts when you fill the car up.
Most parking fees and tolls for business trips are deductible even if you take the per-mile option.
Putting your Realtor's logo on your car doesn't turn your morning commute or other nonbusiness travel into a business trip.
If you leave your home town for a business trip, the costs of transportation and lodging are deductible. Meals are 50 percent deductible, provided they're not extravagant. This is an easy deduction to exploit, so the IRS imposes many restrictions and limits. Publication 463 explains them all.
The Costs of People
Even if you're a sole proprietor, you may not be able to go it alone. If you have employees, the costs of their pay and fringe benefits are deductible. Hiring an outside professional, such as an accountant or attorney, to do work for you is also a write-off.
Some of the costs of charming and wooing clients are deductible too. The IRS allows you to write off costs for entertaining or dining clients and business associates, though, as with travel, there are many limits and rules.
On the 1040
Most write-offs for a self-employed professional go on Schedule C, but two important ones go on Form 1040:
- Half of your self-employment tax — the equivalent of an employee's Social Security and Medicare tax contributions — is deductible on the 1040.
- If you pay for health insurance for yourself and your family, you can often write off 100 percent of the premium cost.