As a real estate agent, financial paperwork can make or break your net income. Most real estate professionals are not considered an employee but self-employed sole proprietors. So, what does that mean for you and your taxes?
As a self-employed individual, you must pay quarterly estimated tax payments throughout the year. You also must file Form 1040 by April 15th of each year.
The IRS requires you to submit this form even if you don’t owe any money in taxes at the end of the year. This requirement is because the IRS wants to know how much money you have available to spend on yourself.
If you owe them money, you must pay it back before the due date.
Real Estate Agent Deduction Receipts
You may deduct some business expenses from your gross income when calculating taxable income. For example, you can deduct mortgage interest and property taxes paid during the year.
However, there are limits to these deductions. To qualify for certain deductions, you must itemize your deductions on Schedule A (Form 1040).
You can claim miscellaneous deductions on Schedule A. These include unreimbursed business expenses, home office expenses, moving costs, and charitable contributions.
The Standard Deduction is the most common deduction taken by real estate agents. It allows you to take $6,300 per year off your taxable income without worrying about itemizing. If you are married and filing jointly, you can split your deductions between spouses meaning each spouse can claim half of the standard deduction.
The mortgage interest deduction is the other significant deduction used by real estate agents. This deduction allows you to subtract the amount of interest paid on your mortgage from your taxable income. The limit for this deduction is 1 million dollars.
Mileage and Gas Receipts
With fuel prices rising worldwide, it’s essential for real estate agents to keep track of their fuel expenditures and mileage, especially for tax purposes. While you can deduct gas and travel expenses, you cannot deduct every trip you take. Only those trips you travel away from your residence count towards the deductible miles.
Meal Receipts
In addition to gas and mileage reimbursement, you can deduct the cost of meals while working. You can only deduct the cost of food items purchased with your funds. Make sure you keep your meal receipts organized to quickly see which ones qualify for the deduction.
Licensing Fee Receipts
If you work in a state that requires licensing, you may be able to deduct the fees associated with obtaining that license. Some states require you to pay a fee every time you renew your license. Other states allow you to remove the initial cost once, but not the renewal fees. Check with your state’s department of revenue or local government to find out what type of license you need and whether or not you can deduct its cost.
Annual MLS Cost Receipts
Some companies offer an annual membership to the Multiple Listing Service. If you belong to one of these organizations, you can deduct the annual cost of your membership. To determine whether or not you can use this deduction, check with your company’s human resources department.
NAR Membership Receipts
Realtors who belong to the National Association of Realtors can deduct the membership cost. Ask your accountant or bookkeeper to determine if you can use this deduction on your taxes. Deductions depend on multiple factors, including your marital status and other sources of income.
Sales Commission Expense Deduction
If you sell the property as part of your job, you can deduct the commission you receive when calculating your taxable income.
However, there are some limits to this deduction:
- You must earn at least $600 in commissions during the previous calendar year.
- You cannot deduct more than 50 percent of your total sales volume. For example, if you sold $10,000 worth of property last year, you can deduct no more than $5,000.
How to Keep Track of Real Estate Expenses
It can be a challenge to keep track of your actual real estate expenses. Fortunately, there are several software programs designed specifically for real estate professionals.
These programs will help you organize your records and make them easy to access. In addition to simplifying your life, they provide valuable information about your real estate business.
Here are just a few examples:
The Property Information Report (PIR)
This free program, developed by the U.S. Department of Housing and Urban Development, provides detailed information about properties you list for sale.
It includes information such as square footage, number of bedrooms, and lot size.
The RealEstate Agent Software Suite
This software is a comprehensive package of tools for managing your real estate career. Among its features are a database, a mortgage calculator, and a listing manager.
The RealEstate Agent Management System (RAMS)
RAMS is another popular tool for real estate agents. The management software allows you to oversee several aspects of your real estate business from one convenient location. You can store client data, view reports, and even generate invoices.
You don’t necessarily need to purchase expensive software packages to get started. Many websites offer helpful software for free.
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