June 2, 2021
Tax Deductions that Real Estate Agents Can Enjoy as an S-Corp
Real Estate Agents can maximize their tax savings by taking all relevant tax deductions and business expenses. So what qualifies? We’ve assembled this list to help you understand what is deductible, what is not, and what is worth keeping track of.
These are the main business expenses and deductions real-estate agents can enjoy as an S-Corp:
Business Use of Home and Utilities
Working many hours a week from home, you can take advantage of the Business Accountable Plan to reimburse expenses for maintaining a home office. A Business Accountable Plan allows your S-Corporation to pay you for the cost of using a home office and this is done as a tax-free employee business expense reimbursement through payroll. Some of the allowed reimbursable expenses include property taxes, utilities, mortgage interest, and general repairs. If rather than utilizing space in your personal home, you pay rent for an individual office or time-shared space, you can deduct the cost of rent and separate utilities on your business tax return.
Cell Phone and Internet
That cell phone is the real estate agent’s best friend! Your phone is always at your side or in your hand communicating with clients and vendors. You can either deduct the percentage used for business purposes or set up a separate line specifically for your business and deduct the cost of the added line. And, in today’s digital world, the cost of your internet is also a business deduction. Both the cell phone and internet expenses also fall under the new Business Accountable Plan as reimbursable employee business expenses.
Vehicle, Mileage, and Other Transportation
As a real estate agent, your time and expenses from being on the road for business are business expenses. This means you can now deduct your mileage and the business use of your car, making it easier for you to manage your finances. To take full advantage of these deductions, it's important to keep accurate records of your mileage and expenses using proper real estate accounting methods. The IRS allows you to deduct either the actual expenses, such as fuel, maintenance, and repairs, or the miles that you drive throughout the year. There are some amazing apps available to help track the mileage. Don’t want to track mileage or put wear and tear on your own car but need to get around town to meet clients? That’s okay! You can also deduct the cost of a taxi, public transport, Uber, and Lyft.
Books Literature and Education
The market is constantly changing. This means you will want to stay on top of your game. The cost of books, literature, webinars, continuing education courses, and other classes that help your business grow are all expenses that you can deduct.
Equipment and software
Your computer, printer, office furniture, and even the cost of your cell phone are all allowed expenses for a real estate agent. Any software you must purchase to run and maintain your real-estate business, such as CRM and marketing platforms subscriptions is also deductible.
Supplies and Gifts
There is nothing more fulfilling than getting the right house to your clients and close a deal! You help someone buy a new home and you want to purchase a housewarming gift? Allowed! Buy supplies on Amazon? Tax-deductible! Various supplies, such as paper, pens, and envelopes, all are tax-deductible as well.
Marketing and Advertisment
Business cards or signage, possibly even have a website designed... Again, all these expenses are allowable deductions.
Professional Services, Consultations, and Contractors
Just like your clients will need your professional help when they want to buy or sell a house, there are times when you need to seek the advice of other experts. Whether you have to reach out to a graphic designer or consult a real estate lawyer for legal advice, the cost of these professional consultations is deductible. Yes, even the cost you pay to work with us here at Formations is allowed! And, if you need to hire independent contractors to perform services for your business, such as transaction coordinator, photographer, home staging expert, general carpentry, or contractors, these fees also qualify for tax deductions. Be sure to discuss the rules for issuing 1099’s to these contractors with your Formations team.
If you take a prospective client out to lunch or meet a customer for coffee, a percentage of this expense may be allowed. The tax rules for deducting business meals and entertainment have recently changed, so be sure to let us know if you have any questions. Business meals qualify as an employee business expense that can be reimbursed through payroll using the Business Accountable Plan.
Insurance and Licensing
Your real estate license renewal, as well as your professional memberships, MLS fees, and your general liability insurance are tax-deductible expenses. And, if you pay for health insurance for yourself, your family, and your employees, there are amazing tax benefits available that we want to help you take advantage of.
Commissions and Fees
Commissions you pay to other real estate agents, or fees you need to pay to your brokerage (such as desk fees) are all fully deductible.
Rather than get overwhelmed know that our team here at Formations are experts in helping set up a manageable way to track all these expenses for your real-estate business. We’re here to help so give us a call today