As a Real Estate Agent you are always on the go and spending money left and right to make things happen. Whether you are helping a customer sell his home, or helping someone else buy a rental property, you are always spending money.
Have you ever thought which for these expenses are a tax write off? In this article we are discussing “Tax Deductions for Real Estate Agents 2021-2022: Ultimate Guide” that can help you lower your tax burden.
These Tax Strategies for Real Estate Agents can dramatic effect on your tax Bill. Read on to learn detailed tax write offs for the realtors.
- 1 Advertising & Marketing
- 2 Education And Training
- 3 Required Licenses And Dues
- 4 Phone, Internet & Fax
- 5 Insurance
- 6 Real Estate Agent Car Tax Deduction
- 7 Business Travel & Meals
- 8 Home Office Deduction
- 9 Office Rent And Utilities
- 10 Business Gifts ($25 Deduction Limit)
- 11 Expenses Paid on Clients Behalf
- 12 Self-Employed Health Insurance Deduction
- 13 Small Business Equipment
- 14 Office Supplies & Softwares
- 15 Employee Payroll & Payroll Taxes
- 16 Retirement Plan Contribution
- 17 Vehicle Wrapping
- 18 Legal Or Professional Services
- 19 Set up a S Corporation
- 20 In Conclusion
- 21 Learn More
- 22 1099 NEC Forms are Due January 31st
Advertising & Marketing
Most of the real estate agents and realtors spend money in this category. Real Estate Agents spend thousands a month on Advertising and Marketing. Some of the examples include:
Sales Leads (Example from Zillow)
Yard Signs, Business Cards
Pay Per Click or Google Campaigns
Direct Mail Campaigns
Education And Training
One of the things we have learned by talking to hundreds of successful realtors that they always invest money in their earning ability.
Many work with other successful realtors and purchase their coaching programs. They also spend money on continuing education requirements to stay on top of legal requirements.
Many successful real estate agents also buy Audio book subscription from Amazon or real estate books, and online courses. These expeness not only reduce your taxable income but also can help you increase your earned income as well.
Required Licenses And Dues
In order to work as a realtor you are required to maintain your license and in pay for dues either on year or quarterly basis.
These expenses can be legal write off. For example: MLS Dues, Association/Board Dues for Example(www.Car.Org), Chamber of Commerce.
Phone, Internet & Fax
Realtors spend more than 50 Percent of the time over Phone, Internet or reviewing fax offers.
Realtor are required to carry various insurance to protect the public. These insurance include E&O, General Business Coverage Insurance, Business Vehicle Insurance.
If you are successful enough to have your own office, you may have employees and will need to pay Workers Compensation. This is also tax deductible.
Real Estate Agent Car Tax Deduction
Realtors spend more than 50% of their time using their business vehicles, either looking for properties, showing the properties to the customers or running paperwork back and forth between buyers, sellers and escrow companies.
This is very important deduction for realtors and its important that you learn all the options before making your choice.
You have two options when claiming Real Estate Agent Car Tax Deduction:
Simple Method (Standard Mileage Deduction)
The simple method where you take a cost per mile for miles you driven for business.
For 2021, the standard mileage rate is 56 Cents per mile.
For Example: if you drove 10,000 miles, you could deduct $5,600 from your
In addition to Standard Mileage expense, you can also get to deduct DMV Registration fees and taxes, car loan interest, Vehicle Cleaning, Bridge Tolls, and parking fees to the standard mileage deduction.
Actual method is typically used by many Realtors especially when their actual expenses are significantly more than the standard mileage method.
In actual method, you itemize the list of expenses pertaining to your vehicle. Vehicle Repairs and maintenance, Parking, Vehicle Lease Expense, Vehicle Cleaning, DMV fees and Depreciation.
Tip: We recommend looking into Tax Deductions for Real Estate Agents regarding SUV or Large Vehicle Purchase.
This is especially helpful if you purchase a business vehicle that is equal or greater than 6000 Pounds. In this case you may be able to depreciate the vehicle 100%(Given its purely used for work and not for personal use)
Business Travel & Meals
If you work across state or across country you may have to travel alot.
Many of the Travel Expenses are fully tax deductible. These expenses may include Airfare, Hotel Stay & Lodging and Travel Meals.
On the other hand if you are not travelling and taking a client out for a business meal and taking another realtor or vendor out to discuss business you can write off Meals.
Usually meals are 50% deductible but in 2021 and 2022 laws may be slightly different and may allow up to 100% deduction of meals.
Home Office Deduction
Many Real Estate agents work from their home. They usually have their computer, printer and other equipment setup at home.
IRS requires that portion of the home deducted on your tax return is exclusive area and is not share for personal purposes.
For example you cannot have a small table on side of bedroom. There are two methods for deducting your home office. Simple & Complex Method.
Simplified Method for Realtors
Simple method allows you to take your square footage and multiply by 5 dollars a square foot. Max amount you can write of under this methods is $1500.
An example would be a 100 square foot room that you use exclusively as your office.
Multiplying that by $5 gives you $500 that you can deduct for your home office.
Detailed Method for Realtors
In order to calculate home office deduction under this method
first you find out what is total size of your home office, example 200 Square foot then you divide that by total home size, example 2000 Sq Feet. So Office is 10% of the total home.
Secondly, you take home expenses such as Mortgage interest, Insurance, Property Tax, Repairs and Utilities and come up with the total example $20,000
Thirdly, you take 10% of $20,000 which will be $2000
Office Rent And Utilities
If you rent office space for your real estate office, then the rent you pay is tax-deductible along with Office utilities such as electricity, water & trash service.
This is an important Tax Deductions for Real Estate Agents for 2021-2022 as many real estate agents pay for Desk Fee or shared cost of utilities for their office.
Business Gifts ($25 Deduction Limit)
IRS allows Business Gifts of $25 Per person Per year. If you pay anyone more than that then it may be taxable depending up the purpose and what was the Gift intended to accomplish.
If a payment can be considered other income or referral and you pay someone $600 or more then you are required to issue them a 1099M or 1099 NEC.
Expenses Paid on Clients Behalf
Its very common practice for Real Estate Agents to pay many expenses on behalf of client to help clients get their home or real Estate property sold.
These fees may includes expenses such as Property Appraisals, Locksmith Services, Inspection reports, Minor Repairs, Photography and Home Staging.
Self-Employed Health Insurance Deduction
If you are self employed, most likely you have to buy your own health insurance.
You can deduct health insurance you pay for yourself or your family.
This is written off as a Adjustment in your income taxes.
Small Business Equipment
Real Estate Agents often purchase standard business equipment like computers, iPad, Video cameras, Camera Drones for photography.
Most of these items are fully deductible(expensed) in the year you purchase them versus having to depreciate them over multiple years.
However, if you find yourself buying expensive items such as Laptops, Drones and other items over $2500, be sure to check with your Tax Accountant & CPA if it can be deducted or depreciated over time.
You may be able to take Section 179 or Bonus Depreciation on some of the items.
Office Supplies & Softwares
Real Estate agents regularly use office supplies such as Envelopes, Folder, Paper and Pens when writing offer, showing homes to customers and mailing marketing materials to potential customers.
If you use any software to contact potential customers, keep track of your offers, Contact current customers or keep track of your finances using software such as QuickBooks.
- CRM( Example Sales Force)
- Marketing System like Mail Chimp or Constant Contact
Employee Payroll & Payroll Taxes
If you have employees that work for you such as receptionist, admin, bookkeeper or sales support, you pay them on hourly or salary basis.
You can deduct their W2 Salary and any employer payroll taxes(Such as FICA, State Unemployment Taxes) that you pay in addition to the payroll.
Retirement Plan Contribution
It is important to start putting away money for retirement. You can not only have money available when you are older but you can save a thousands of dollars if you
There are a several good plans to choose from; We have provided top 3:
2022 limit is the lesser of $61,000 or 25% of income. As self-employed, this plan allows real estate agents to invest significantly more money each year into retirement versus the traditional IRA plan.
Keep in mind that if you do have employees other than yourself or your spouse, you’ll need to match whatever contribution percentage that you elect for yourself, for your eligible employees as well.
IRAs(Traditional & Roth)
2022 limit for Traditional IRA is $6000 and $7000 if you are over 50 years old. If you don’t want to put a large amount of money away, then a Traditional(Pre Tax) or Roth IRA(Post Tax) might be for you.
2022 individual contribution limit is $22,000, $27,000 if over 50. However, like a corporate 401k, your company can also contribute to this plan – as much as 25% of your compensation. The max individual plus business contribution to this plan can be as high as $58,000 or $64,500 if over 50, for 2022.
Key requirement is you need be self-employed with no employees in your business( Basically you and your spouse only) It is ok to have independent contractors as long as they are properly classified.
Real estate agents are always looking for new and innovative ways to advertise their listings. A popular option nowadays is to wrap their vehicles in vinyl advertising.
Not only is this an eye-catching way to get noticed, but it can also be a tax deduction.
Real estate agents can deduct the cost of the wrap as a business expense, as well as any associated costs such as design and installation.
This deduction can be a valuable way to offset the cost of advertising, and it can help realtors to get their brand out there.
So if you’re a real estate agent who is thinking about wrapping your car, keep in mind that it could be a wise financial decision as well. Here is detailed info regarding How much it cost to Wrap your vehicle
Legal Or Professional Services
If you pay an Attorney, CPA or a bookkeeper for your real estate business, you can deduct these professional fees.
Don’t forget to issue 1099M or 1099 NEC as needed. See our guidelines for 1099s.
Set up a S Corporation
Real estate agents can save thousands by incorporating their business as an S-Corp election, real estate agents can save thousands or even tens of thousands of dollars on self-employment tax versus being a sole proprietor.
The IRS typically charges self-employed business owners 15.3% for self-employment (12.4% for social security and 2.9% for Medicare).
If you are a Sole Proprietor
If you haven’t set your company up as an S-Corp, you will pay this 15.3%, in addition to your income tax, for all of your adjusted gross income.
For example, if you earned $100,000 in after deductions, adjusted gross income, your SE tax alone would be $15,300 (not including what you’d pay for income tax).
Your Business Setup as an S-Corp
If you set yourself up as an S-Corp, you will pay yourself a reasonable salary and also receive distributions(K1) Based on number of hours work if a real estate agent salary is around $40,000 annually then the Shareholder will take 40k in w2 and 60k in K1
Going back to our example of $100,000 adjusted gross income, let’s assume you paid yourself a salary of $40,000 and took $60,000 in dividends. In this case, you’d only pay the 15.3% SE tax on the $40,000.
In this example, your self-employment tax is $6,120, effectively lowering your tax burden by nearly $9,000.
Finally, Tax Deductions for Real Estate Agents 2021-2022: Ultimate Guide provides comprehensive list of expenses for Real Estate Agents and Realtors.
These deductions can help you lower your taxes. These will only benefit you if you track them and keep supporting documents. Use this Ultimate guide as a reference and discuss these with your CPA and see how they apply to your tax situation.
1099 NEC Forms are Due January 31st
If you paid contractors such as stages, plumbers, or handyman, don’t forget to issue them a 1099 NEC form by no later than January 31st each year to not receive a penalty.
See IRS page here for more info about 1099 Forms