Tax laws in the United States, at both a federal and state level are complex. For real estate agents and brokers staying in compliance with these laws and regulations requires expert advice. Doing your taxes yourself, or with a CPA that does not have experience with real estate professionals can be a mistake – costing you significant savings via deductions and other credits.
Real estate agents and brokers are considered independent contractors. At the end of each you receive 1099 tax forms that detail the prior year’s compensation. This means that for tax purposes, real estate agents are considered self-employed. As such, a schedule C form on your personal tax return (Profit or Loss From Business) must be filed. Agents can write off deductions directly from income, but its gets more complicated by self-employment tax on any profits.
Real estate agents and brokers need a CPA for many reasons. RLTY’s partner companies specialize in tax preparation and filing for real estate agents and brokers.
Some examples of tax deductibles every agent or broker should know about and take advantage of:
General tax deductions:
- Licenses and MLS fees/Dues
- Marketing costs
- E&O and Insurance
- Commissions paid to other agents
- Education and training
Are you commuting between real estate properties, the office, and other lead generation efforts?
Deductions are available for:
- Vehicle lease costs
- Vehicle depreciation
- Train and subway fees
- Parking and tolls
- Car insurance and registration
Deductions for your time in the office?
- Office rent
- Office supplies
- Cellphones and other electronic devices used for business
- Virtual assistants and bookkeepers
- Software and applications
Working from home in this post COVID environment?
You may be eligible for deductions such as:
- Property Insurance
Using a limited liability company provides you with the most tax flexibility.
An LLC is taxed on a pass-through basis, with the business profits or losses passed through to the owner’s personal tax return. Earnings are taxed at your applicable individual income tax rates and subject to Self-Employment taxes (which includes Social Security and Medicare taxes).
But, if the LLC meets certain IRS eligibility criteria, you can file an S corporation election with the IRS. With S corporation tax treatment, you are not subject to the Self-Employment tax. Sounds complicated? Let us help. Legally avoiding self-employment taxes could save you up to $10,000 on the first $100,000 you earn in a year!
While tax deductions can save a lot of money, real estate agents and brokers have to be careful. Tax fraud and misfiling can result in future monetary and criminal problems. RLTY can help you determine the most prudent tax deductions and credits to claim.
Using an accountant may sound expensive but the benefits far outweigh the cost, especially with the discounted rates we have negotiated for you.
LOW AUDIT RISK
A limited liability company with S Corporation tax election will likely give you a lower risk of being audited. While an additional business return may have to be filed, the cost of that return is greatly outweighed by the risk of an audit.