If you are a real estate agent, you may know the IRS has been cracking down on tax evaders. To avoid being audited by the IRS, it is essential to know your rights and responsibilities as a taxpayer and how they apply to you as a real estate agent. Fortunately for agents like yourself, there are many helpful tax strategies available. This blog post will discuss six of them in detail.
1. Filing Quarterly Estimated Taxes
According to real estate experts on this website, one of the most important things to remember when filing your taxes as a real estate agent is to avoid underpaying your taxes. This can result in hefty penalties from the IRS.
t’s important to be aware of what you need to stay on their good side. One way of doing this is by making quarterly estimated tax payments if you earn more than $400 annually from self-employment or have no income throughout the year but make over $600 during that time.
The amount of estimated taxes needed depends on various factors such as deductions claimed and previous years’ income. You have to pay a penalty for underpayment of estimated tax if you didn’t pay enough income tax by withholding or during the year through quarterly installments and annualized income installment, or a combination of both.
It’s always better to file estimated taxes every quarter instead of waiting until the end of the year. This can help ease any tax burden you might have on April 15th, when all your earnings are added together and taxed accordingly.
2. Plan Your Retirement
Another useful strategy for real estate agents is to plan their retirement. The sooner you start planning, the more options available to you. One option that many agents choose is a SEP-IRA (Simplified Employee Pension Individual Retirement Account). A SEP-IRA allows self-employed individuals to contribute up to 25% of their income each year, up to $54,000 in 2016. This can be a great way to save for your retirement and reduce your taxable income at the same time.
Other types of IRAs may be advantageous for real estate agents, such as Roth IRAs or traditional IRAs. It is essential to consult with a financial planner to find the best retirement plan for you.
3. Deducting Business Equipment Costs
Another strategy real estate agents should know about involves deducting business equipment costs from their taxable income if they claim home office expenses for their deduction calculations. For instance, You may deduct computers solely used for work purposes, and printers or scanners are needed to do your job effectively.
It is advisable to keep detailed logs to avoid getting audited by the IRS later down the line because documentation helps prove what needs were deductible and which weren’t allowable under IRS regulations.
4. Deduct Your Automobile Expenses
Another strategy that real estate agents should know about is deducting automobile expenses related to their work. This includes mileage driven for business purposes (at a rate of 54 cents per mile in 2017), tolls and parking fees paid while conducting business, repair, insurance, and airfare or train tickets used for work-related trips.
Keep in mind that only 50% of meals and entertainment expenses incurred when traveling for business are deductible, so try to keep your receipts if you plan on taking this deduction.
Be sure to document all of your deductions as best you can. The IRS may audit you at some point, and having detailed records will make it much easier to prove you rightfully took the deductions.
5. Deduct Your Home Office Expenses
When it comes to deductions, real estate agents can deduct business equipment costs from their taxable income if they plan on claiming home office expenses for their deduction calculations. It is advisable to keep detailed logs not to get audited by the IRS later down the line because documentation helps prove what needs were deductible and which weren’t allowable under IRS regulations.
You can also claim depreciation of your home office equipment and furnishings. This includes desks, chairs, computer systems, and printers. Additionally, you may be able to deduct a portion of the interest on your mortgage or rent as well as insurance costs if they are related to business use.
6. Deducting Every Applicable Expense
It involves deducting every applicable expense related to selling real estate properties. It includes advertising costs such as buying signs or listing fees, legal services like drawing up contracts, commissions paid out when successfully closing deals, photography costs if pictures need taking throughout negotiations, and even the cost of travel to meet clients. It is vital to keep detailed records of all your expenses so that you can prove they were related solely to selling properties.
There are many helpful tax strategies available for real estate agents. Knowing about these breaks and deductions ahead of time can avoid any potential headaches come tax season and save yourself some money in the process.