Realtor Tax Tips
There are a number of tax tips every self-employed Realtor should be aware of. Planning early and carefully tracking mileage expense can ease the tax burden for Realtors. In addition, writing the purpose of each meal and who was present can make things easier in the event of an audit.
-
Start Planning Early
-
Many Realtor agents don't start thinking about taxes until the start of the filing season in January. The best time to start tax planning, however, is well before year end.
Deducting Mileage Expense
-
As a self-employed Realtor, one of the largest deductible expenses is for the business use of your car. There are two ways to compute this tax deduction: actual expenses or the standard mileage rate.
Realtor agents who use the actual expenses method need to carefully track the many costs associated with their vehicle, including (but not limited to) gas, oil, licenses, repairs, insurance, lease payments, or depreciation. If the car is also used for personal reasons, the self-employed Realtor needs to track the number of miles driven for personal as opposed to business use. The expenses are then prorated, to compute the business vehicle deduction only.
Taking the standard mileage rate is the easier way out, although a mileage log is still required. For tax year 2010, the applicable mileage rate for business miles is 50 cents per mile; it's 51 cents per mile for 2011.
Limited Gift Deductions
-
Many Realtor agents present clients with a gift when a home sale closes. The limit on business gift deductions is $25 per client per year.
Business and Entertainment Expenses
-
Self-employed Realtors may also deduct the cost of business and entertainment expenses on Schedule C. Travel away from home for seminars and conventions is also deductible. Good record-keeping is just as important as tax planning, since a lost receipt basically translates into a lost tax deduction. It's also important to note the purpose of any entertainment expenses, including who was present and the purpose of the entertainment. While such records are not necessary when filing your tax return, they are needed in case of an audit.
Health Insurance Deduction
-
Self-employed Realtors are also entitled to a health insurance tax deduction. Deduct the full cost of health insurance you purchase for yourself, your spouse, and/or your dependents. But you can't deduct insurance costs for any months you were eligible to participate in a group health insurance plan through your or your spouse's employer.
Regular Tax Deposits
-
In addition to making the most of deductions and carefully tracking expenses, it's important for self-employed Realtor agents to make tax deposits on a regular basis. The best tax planning strategy is to set aside 20 percent of each commission check for taxes. Realtors with higher income should set aside more, and be sure to make quarterly deposits for both federal and state taxes. Failure to do so could result in a significant tax bill at year end. In addition, Uncle Sam is always happy to add on interest and penalties for underpayment of tax during the year.
-
