As a real estate agent or real estate broker, you are generally not considered an employee for federal tax purposes. If you receive commissions from sales transactions, even if you’re working for a real estate firm, you’re considered to be self-employed. This status can actually be beneficial since you’re entitled to certain write-offs and deductions that can lower your overall tax payment.
We know it can be stressful to understand the ins and outs of self-employment taxes and deductions! You have a lot to worry about when it comes to maintaining your own business as a real estate broker or agent. It’s best to have a qualified CPA on your side to ensure your accounting and tax preparation is taken care of quickly and accurately to avoid any issues with the IRS.
Filing self-employed taxes means needing accurate records of all your expenses throughout the year. As a real estate agent or broker, sometimes you have to spend money to make money. Whether you have to market a property or drive long distances to meet a potential homebuyer, these are expenses you can write-off on your taxes.
You need to invest in a system for accurate record keeping early on to ensure a smooth tax filing process. There are free and inexpensive tools like Quickbooks which can assist with keeping track of expenses like mileage, equipment, and additional deductions. When it comes to filing taxes independently, it often is best to recruit the assistance and direction of a tax advisor for assistance in filing all deductions accurately.
The best way to prepare yourself for tax season as a realtor or broker is to be familiar with your tax deductions in advance. While most deductions are self-explanatory, some might surprise you. Reviewing what is and isn’t a valid deduction is a good way to stay on top of your accounting process. Here are the most common write-off deductions for real estate agents and brokers:
- Marketing (sales flyers, digital marketing, etc)
- Education costs
- Transportation costs
- Home office expenses
- Real estate licensing fees
- Client gifts ($25 deduction limit)
When in doubt about whether or not something qualifies as a deduction for your business, speak to a qualified tax advisor to review your unique situation.