As yet another tax season rolls around, and people everywhere are scrambling to save as much money as possible by maximizing their deductions. This can be a real headache if you’re in real estate, since it’s a complex line of work with a wide array of different expenses, some of which are deductible and some of which are not. Which items you can and cannot write off depends on many factors, including the size of your business, your office, your vehicle, and other things. Here are a few of the most popular legal deductions for real estate agents:
Your Home Office
If you work from home, you might be eligible to deduct the cost of a home office. As long as you have an area of your home specifically dedicated to work, you should be able to subtract its cost from your yearly taxes. This applies even if you also make use of your broker’s office space. There are several rules, however; to deduct the cost of a space, for example, it must be your primary workspace and it must not be used for other things. You can’t deduct your bedroom just because you have a computer there that you occasionally use for work; you would have to use the computer solely for your real estate job and you would only be able to deduct the cost of the square footage of the area you are employing.
Your Vehicle Mileage
Of course, you will be expected to travel quite a bit as a real estate agent, especially during your busiest times. The more work you are getting, the more you’ll have to drive, and the cost of gas and wear and tear on your car can really rack up. Fortunately, if you keep a detailed log of your mileage, you will be able to deduct the travel that you do for work. The IRS has a standard rate for miles traveled; it could potentially add up to quite a bit if you’re traveling a lot for work. Keeping track of your mileage is no longer the slog that it once was, either; you can simply use an app on your phone to maintain a detailed record of everywhere you went for work. It’s potentially also possible to deduct the cost of leasing a car, or even to deduct the depreciation of a new car; both of these are viable options, as a successful real estate agent shouldn’t be seen driving around in a clunker!
Other Travel Expenses
Occasionally, you will have to travel for work for meetings, seminars, and other crucial business ventures. In most cases, you can deduct the cost of travelling, including hotel fees, airline tickets, and other sundry costs. Meals such as business lunches are 50 percent deductible too, so make sure you keep a detailed record anytime you take a client to a restaurant or cater an open house.
Your Office Supplies
Most of what you use in your office can be deducted as well. This ranges from little things that add up over time – such as stationary and photocopies – to larger expenses such as furniture. If you purchase a new desk, for example, you may be able to deduct the full amount. If you made such a purchase a few years ago, you might still be able to deduct the cost, minus a few years of depreciation. If you use your cell phone for work, you can deduct a certain amount of your payments as well. Or you may have a work phone that you use only for business; in that case, you can deduct the full amount (this also applies to a landline to your office).
Your Realtor’s License
As a real estate agent, you have certain fees that you must pay annually, many of which are deductible. For example, you can deduct the cost of renewing your state license each year; you can also deduct the cost of your business insurance and your Errors and Omissions insurance. There are other potentially deductible costs as well, such as membership dues, and certain other real estate taxes. Self-employment taxes, however, are not deductible.
Retirement Plan Contributions
Of course, just as anyone in any line of work should, a real estate agent should make regular contributions to a retirement plan. Often, you can make deductions based on how much you are contributing to a retirement plan; for example, the limit for a standard IRA is 12.5%.