Tax season is here, and the time is now to learn how to maximize your deductions. Many real estate agents have a variety of expenses, and confidently identifying which expenses you can use as deductions is critical to helping you keep more of your hard-earned dollars.
This is important knowledge whether you’re doing your taxes yourself or you have an accountant. Understanding which expenses are allowed will help you avoid overpaying on your quarterly and year-end taxes, no matter where you are in your career.
1. Vehicle Mileage or Expense
You spend your days driving between properties and appointments. How do you determine whether to go with the standard mileage deduction or track all your auto-related expenses? There’s an easy way to break this down:
If you drive 10,000 miles or more per year for your real estate business, it’s likely you’ll get the greatest tax benefit by taking the standard mileage deduction. If you are a lower mileage driver, or have especially high car payments, the actual cost method may yield a higher deduction. The two methods can be compared in more detail in this article.
For those who drive more than 10K per year, the IRS requires you to keep a detailed log in order to claim this deduction, which includes date, time, mileage and purpose of the trip. It can be especially beneficial to have an app that tracks and records your trips. QuickBooks Self-Employed is a tool that helps users track an average of $7,393 in mileage deductions per year. It automatically captures trip date, length, and time of day for easy categorization, then records the data. You can decide if the trip was for business or pleasure with a tap of the button, making mileage tracking effortless — the way it should be.
2. Marketing and Advertising
Successful real estate agents typically invest in marketing and advertising, which means that collateral like business cards, flyers, signs, ads, and promos are all deductible. But did you know that production costs, such as writing and design fees, whether the materials are produced by an agency or part-time hire are also deductible?
Digital and online advertising costs are quickly becoming the greatest area of spending. This includes website design and hosting fees, search engine marketing, pay per click advertising, video production, and any other IT-related costs.
3. Home Office Deduction
Do you have a dedicated area of your home for work? Perfect. You’re eligible for a home office deduction, even if you also have office space at your broker’s office — unless you’re deducting desk fees already (see more below). Like the vehicle deduction, the home office deduction offers an option: the regular method or a simplified method. Most self-employed people find that the simplified method maximizes their deduction. However, if you have a particularly large home office, or live in a very high-cost area, the regular method — in which you track actual expenses — may yield the highest deduction. Click here to learn more about which approach is right for you.
4. Desk Fees
Whether you are hanging your license under a national franchise or with an independent broker, your desk fees are deductible. With Quickbooks Self-Employed, whenever you pay that desk fee — whether it’s monthly, quarterly, or annually — you can set a rule to automatically categorize this expense. QuickBooks Self-Employed auto-categorizes over 70% of transactions for you, saving you time and money.
Note, however, that if you’re taking a deduction for brokerage desk fees, you will not be able to claim the home office deduction.
5. Office Supplies and Equipment
Whether you’re taking desk fees or home-office deductions, you can still claim other office-related expenses, including: stationery, photocopies, and any other consumables needed to run your business. Other large purchases that can be expensed in full — or depreciated over a number of years — include furniture, fax machines, copiers, computers, or you telephone and associated bill.
If you have a dedicated landline telephone for business, you can fully deduct this expense. If you use your cell phone only, you are eligible to deduct the business percentage of that expense.
6. Meals and Entertainment
There are two situations in which you can deduct meals as a business expense: when you are travelling on business and when you are dining with clients or with other professionals for the purpose of conducting business or generating referral business. In either case, you can deduct 50 percent of your total expense, which includes tax and tip for the meal. In the case of business entertainment, you are allowed to take the meal deduction only if business was discussed during the meal, or immediately before or after.
In the case of events that are provided to the general public, such as a well-advertised open house, you are able to deduct 100 percent of the cost of refreshments and food.
Meals and entertainment expenses can add up. Many agents save receipts and enter them into spreadsheets or give them to an accountant later, but often this results in loss of receipts, and loss of money. Quickbooks Self-Employed streamlines this process. Simply snap a photo of your receipt to digitally store it with your transactions. This process helps users save an average of $4,340 per year.
7. Fees, Licenses, Memberships, and Insurance
Annual fees are a common costs of doing business and are deductible. In real estate, that means your state license renewal, professional memberships, and MLS dues. An important caveat with regard to professional memberships: The portion of your membership dues attributable to lobbying and political advocacy is not deductible. (For information on the deductibility of your National Association of REALTORS® dues, click here.) General business insurance and Errors and Omissions (E&O) insurance are both fully deductible business expenses. Additionally, you can deduct real estate taxes necessary for your business, but not self-employment taxes.
8. Professional Development and Travel
Given rapid industry change, continuing education is a great way to stay competitive. It’s also a requirement in most states. Many real estate professionals pursue professional development through classes, trade shows, conferences, or coaching. If you need to travel to attend an event or meet with a coach you may be able to deduct those transportation and/or accommodation costs.
It’s imperative to track all this information correctly to ensure that you’re compliant with the IRS. One way to do that is by linking your banking accounts with Quickbooks Self-Employed. As soon as you incur an expense associated with travel, tap a button to categorize it in one of the IRS approved categories.
9. Software and Business Tools
Any software needed to run your business is fully deductible — including lead generation subscription services such as customer-relationship management (CRM) software. Products such asQuickBooks Self-Employed not only help you automatically track your expenses and mileage, but may be fully deducted as well.
Go into this tax season confidently knowing and understanding how you can save money. For those ready to take advantage of their deductions, and file their annual taxes, Quickbooks Self-Employed has two options: Download a report and send it directly to your accountant, or integrate your report with TurboTax Self-Employed so you can easily do your taxes yourself. If you’re new to Quickbooks Self-Employed, enjoy a 30-day free trial, and a TurboTax bundle so you can set yourself up for financial success today.