Tips for Realtor Income Tax Deductions
Tips for Realtor Income Tax Deductions. Selling homes may be your principal occupation, but unless you're careful, you could be selling yourself out on your taxes. Most people, including real estate agents, do not spend enough time researching write-offs when preparing their taxes and miss opportunities to save money. Whether you sold 90 mansions this year or three condominiums, you qualify for a number of tax-reducing deductions.
Most real estate agents work as independent contractors and pay self-employment tax. At 15.3 percent, this tax is hefty but covers the contributions to Social Security and Medicare that an employer would normally make. What many people don't realize is that you can deduct half your self-employment tax as an expense on your income tax form. This is because employers also have the luxury of writing off Social Security insurance contributions. Successful agents should know that only the first $106,800 of net earnings are subject to the Social Security portion of the tax, which is 12.4 percent. You must always pay the 2.9 percent Medicare tax no matter how much you earn.
Realtors generally incur quite a few expenses in the normal course of business. You can write all of these off on your taxes. Common examples are office supplies, computers, interest on business loans, office rent wages for employees and bad debt expense. State and local taxes are also deductible. You can also deduct automobile expenses for work-related use. The cost of commuting between home and work does not qualify, but costs you incur driving clients to visit properties do. Some people falsely assume that they can write-off any article of clothing worn to work. The IRS does allow taxpayers to write off work uniforms, but only if the clothing worn is not suitable for normal use. Business suits and polo shirts do not qualify. But if your agency requires you to wear clothing with its logo, this would be deductible.
Education and Dues
Real estate education expenses such as seminars, college courses and books are deductible. You may write off student loan interest as well. Also deduct dues to professional organizations and license fees because these are a cost of doing business. The membership fee for your local Chamber of Commerce as well as subscriptions to trade publications qualify, too.
If you use part of your home of business purposes, the IRS allows you to write off the related expenses. These typically include partial utilities and insurance, office furniture, computers, rent and even depreciation. Note that the room you use must be almost exclusively for real estate use and be your principal place of business. If your agency provides you with an office, you probably don't qualify for this deduction. Exceptions include using a room to meet with clients on a regular basis. Storage areas also qualify, but your storage room does not have to be exclusively for business use. The total amount of the home office deduction cannot exceed your gross income.
- IRS: Business Expenses
- IRS: Self-Employment Tax
- IRS: Publication 529
- IRS: What You Need to Know About the Home Office Deduction