Tax Saving Tips for Realtors

Real estate agents can significantly reduce the amount of taxes they pay.

As a real estate agent who runs your own business, you most likely will owe the IRS a substantial amount of tax money come April 15. However, as Julie L. Bohn, a certified public accountant, points out, you may be paying too much tax because of ignorance. If you retain the services of a certified public accountant (CPA), you may save a significant amount of money if you know what to claim as a tax exemption.

Home Office

You can count your home office as a tax deduction. As Bohn points out, this applies if you use your home as your principal place of business. If you can prove this, you may deduct a portion of rent, mortgage, utilities, repairs, insurance and property taxes. For the IRS to deem your home your principal place of business, you must devote 10 to 12 hours per week to business there, according to Bohn.

Child Labor

If you have children under 18 who are employed in your real estate business, you can claim the wage you pay them as tax deductible. According to Dr. Stephen Drake, CPA and certified financial planner (CPF), as long as you do not pay your child more than $4,400 a year, you can use IRS Tax Return Schedule C to claim it. The child will not owe federal payroll tax unless he is 18.

However, it is best to keep detailed records. As Drake points out, it behooves you to write a job description and keep a payroll sheet detailing the child's hours. Pay your child by check, which makes it easier to track the transactions in the event of an IRS audit.

Travel Expenses

Any car or truck you use to conduct business is eligible for deduction. According to Drake, there are two ways to earn a deduction for your travel expenses. One way is by comparing your mileage from January 1 to your mileage on New Year's Eve. Multiply each mile driven by $0.345. Record the result on Schedule C, Form 1040. The other method is to compile various expenses related to upkeep. This includes repairs, oil changes, gas-related expenses, license plate changes, expenses related to interest on car debt and depreciation or lease costs, according to Drake. Drake suggests using a business credit card for this method. This enables you to keep a solid record of your car expenditures by month, which makes it easier for your accountant to add up your deductions for your tax preparation.

References

• Optima: What Every Realtor Should Know About Taxes
• Agenttaxsolutions: 10 Most Expensive Tax Mistakes That Cost Real Estate Agents Thousands