Making sense of—and the most of—tax law can be one of the most challenging aspects of a career in real estate. As a real estate agent or broker, your business may be structured in a variety of ways, and likely you earn income in the form of commissions from sales transactions. As a result, figuring out your taxes – and possible deductions – may not always be straightforward.
We have a few tax tips for real estate agents and brokers that may be able to help.
Know How Your Business is Structured
Are you an LLC? A sole proprietorship? The structure of your business may have tax implications so it is important to understand how your business is legally structured. And keep in mind that real estate agents are commonly considered self-employed for federal tax purposes, so you will need to pay a self-employment tax.
Know the Deductions You Are Entitled To
Because you are self-employed, you can take several business-related deductions, including:
- Car expenses – Your car is vital to your real estate business, and expenses incurred from using it for your business are deductible.
- Business development expenses – This includes expenses associated with seminars, conferences, and other professional development courses.
- Training or education expenses – Educational expenses that advance your career are deductible.
- Annual fees and license expenses – License renewals, memberships, dues, and other business-related membership costs are deductible.
- Marketing expenses – Real estate agents engage in a variety of marketing efforts to advertise their business, both traditional and digital, and these costs are deductible.
- Home office expenses – To qualify for the home office deduction, your home office must be used for exclusive or regular use or be the principal location of your business or where you regularly meet with customers.
You Are In Charge of Your Own Withholdings
Because you’re self-employed, you must report any income you earn over $400, and you are responsible for withholding and paying your own taxes. If your tax bill will be greater than $1,000, you should make quarterly estimated payments throughout the year.
For additional tax tips and information on running a successful real estate business, follow along on our blog.