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Get More Money Back: 5 Tax Strategies for Real Estate Agents to Maximize Deductions

As a real estate agent, you work hard to earn your commissions and make a living. However, tax season can be a daunting task for any self-employed professional. The good news is that there are many tax strategies that you can use to maximize your deductions and get more money back. In this article, I will share with you the top 5 tax strategies for real estate agents to help you save money and increase your profits.

Understanding how real estate agents are taxed

Before we dive into the tax strategies, it’s important to understand how real estate agents are taxed. As a self-employed professional, you are considered an independent contractor and are responsible for paying your own taxes. This means that you are required to pay both the employer and employee portions of Social Security and Medicare taxes, which is a total of 15.3%.

In addition to the self-employment tax, you are also required to pay federal income tax and state income tax (if applicable). The amount of taxes you owe will depend on your income and deductions. It’s important to keep track of your income and expenses throughout the year to ensure that you are paying the correct amount of taxes.

How much should realtors set aside for taxes?

One of the most common questions that real estate agents ask is how much they should set aside for taxes. The general rule of thumb is to set aside 25-30% of your gross income for taxes. However, this may vary depending on your income level, deductions, and state tax laws.

It’s important to remember that taxes are a necessary expense for any self-employed professional. By setting aside a portion of your income for taxes, you can avoid surprises come tax season and ensure that you have enough money to pay your tax bill.

5 tax strategies for real estate agents to maximize deductions

Now that you understand how real estate agents are taxed and how much you should set aside for taxes, let’s dive into the top 5 tax strategies for real estate agents to maximize deductions.

1. Maximizing home office deductions

The What: As a real estate agent, you likely spend a lot of time working from home. This means that you may be eligible for a home office deduction. To qualify for this deduction, you must have a dedicated space in your home that is used exclusively for your business. This deduction covers the applicable portion of your rent, utility bills, insurance, maintenance, repairs, mortgage interest, and depreciation.

The How: To take the home office deduction, you can use the simplified method (line 30 on Schedule C) or the actual expense method (line 30 on Form 8829). The standard home office deduction for the 2022 tax year is $5 per square foot to a maximum of 300 square feet.

2. Deducting vehicle expenses

The What: Another common deduction for real estate agents is vehicle expenses. If you use your personal vehicle for business purposes, you can deduct the expenses related to that use, including gas, maintenance, and insurance.

The How: For 2023, the standard mileage deduction is $0.655 per mile driven for work and you can claim the deduction on line 9 of Schedule C. If you opt to use the actual expense method, you will need receipts to substantiate the amounts claimed.

3. Understanding the 20% pass-through deduction

The 20% pass-through deduction is a new deduction that was introduced with the Tax Cuts and Jobs Act of 2017. This deduction allows certain self-employed professionals, including real estate agents, to deduct up to 20% of their qualified business income.

To qualify for this deduction, your income must fall below a certain threshold (which varies depending on your filing status) and you must meet certain requirements. It’s important to work with a qualified tax professional to ensure that you are eligible for this deduction and to maximize your savings.

4. Health Insurance Premiums

The What: Self-employed real estate agents could be able to claim health insurance premiums as tax deductions if their business had a net profit for the year. They can also claim eligible health expenses that exceed 7.5% of their adjusted gross income.

The How: Claim this deduction on line 17 of Schedule 1. Eligible medical and dental expenses for yourself, your spouse, and your dependents can be entered as itemized deductions on lines 1 through 4 of Schedule A.

Please note that health insurance premiums are taken as an adjustment to income and not as an itemized deduction.

5. Meals

The What: Networking and building relationships with clients, brokerages, and colleagues is an important part of becoming a successful real estate agent. For the 2022 tax year (your 2023 tax return) you can deduct 50% of relevant meal costs or 100% for business-related meals that were purchased from a restaurant.

The How: Claim this deduction on line 24b of Schedule C.

Make sure to deduct business meals the right way to avoid triggering an IRS audit!

Conclusion: Implementing these tax strategies for a more profitable real estate business

By implementing these tax strategies, you can maximize your deductions and get more money back come tax season. It’s important to work with a qualified tax professional to ensure that you are taking advantage of all of the deductions that are available to you and that you are paying the correct amount of taxes. For a complete list of tax deductible business expenses, please reference the IRS Publication 535.

Extra Tax Deduction Tip! Tax Preparation and Accountant Fees

The What: For businesses, professional tax help is a necessity. To ensure that real estate agents receive the appropriate help and guidance when filing their taxes, the IRS allows realtors to deduct the cost of small business tax preparation and advice.

The How: To claim the deduction for small business accounting services, fill out the space on line 17, Schedule C.

Learning how this information can be beneficial to your business is one thing, but taking time away from work to implement these strategies is another. At Kim Arden Consulting Inc, we specialize in working with real estate agents and can help you to implement these tax strategies and save money on your taxes.

Contact us today to learn more and to schedule a free consultation and subscribe to our newsletter for more strategies to grow your business.


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