Agent Essentials

Shop Talk - The Real Estate Agent Podcast

Real Estate Agent Podcast Episode 88: Taxes as a Real Estate Agent

Episode 88: Taxes as a Real Estate Agent
March 25, 2022

Tax season is coming, and it’s best to be organized and prepared. In this episode, we’ll touch on the differences between filing taxes as an employee versus being self-employed, as well as what kind of deductions are applicable for real estate agents and how to qualify for them.

Each new year presents the opportunity to better hone in on your tax management strategy for new and veteran agents alike.

Brett Van Alstine

About This Episode

Taxes aren’t a fun conversation, but filing them does fulfill your role as a U.S. citizen and real estate agent. They’re vital to the health of our communities, states, and society. When it comes to tax season, being organized the year prior is important for correctly filing your taxes and understanding your business’s expenses.

In this episode, we’ll touch on the differences between filing taxes as an employee versus being self-employed, as well as what kind of deductions are applicable for real estate agents and how to qualify for them.

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Episode Transcript

Brett: Hey there and welcome to Shoptalk, the real estate show. I’m Brett Van Alstine and in today’s episode, we’re going to talk about a topic that is interesting, inspiring, and crucial to your real estate business. Yes, we’re talking about taxes.

Entering a new year is exciting as it allows us to dream of change to come and opportunities ahead. But each new year also presents the opportunity to better hone in on your tax management strategy for new and veteran agents alike.

We all know paying taxes as a real estate professional isn’t the same as an employee working a 9-5 and filling out a W-2 form. Most real estate agents are considered independent contractors and must pay self-employment tax. This tax is required in addition to federal, state, and local income taxes. Self-employment tax is a social security and medicare tax primarily for individuals who work for themselves.

Before filing any taxes, you must figure out your business’ net profit or net loss. Do this by subtracting your total expenses from your gross income.

A major difference in being self-employed is taxes aren’t withheld automatically. So it’s best to get in the habit of making estimated tax payments every quarter. Estimated payments are due 4/15, 6/15, 9/15, and 1/15.

Real estate agents will need to fill out a 1099-MISC tax form; a 1040 form which is classified within one of three potential Schedules: Schedule 1 is for additional income, Schedule 2 captures what’s owed for other types of taxes, and Schedule 3 allows you to claim additional tax credits; and a 1040-ES form, which is your estimated quarterly tax.

When operating as an independent contractor or small business, it’s important to track all business transactions and to keep a reliable record of the receipts.

This will make your life much easier come tax time, so you can effectively use your documentation to deduct any business-related expenses.

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After the break, we’ll go in-depth about what deductions real estate agents may qualify for, and what the requirements are for writing off business-related expenses.

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Real estate professionals qualify for a range of business-related deductions. Here are the most common real estate agent deductions:

  • Continuing Education - CE requirements and any other training completed can be written off as a tax deduction.
  • Marketing and Advertising Expenses - Investing in marketing is essential to compete in the industry. Oftentimes marketing isn’t cheap, so it’s important to record these expenses so you can write them off.
  • Auto Deductions - This is the most expensive deduction agents can make. All the driving you do for work is tax deductible, along with actual expenses such as fuel, repairs, insurance, and depreciation. Come tax time, you can deduct these expenses based on the percentage that you use your car for business. For example, if 60% of the driving you do in a year is related to work, you should factor that into your tax deductions.
    • One quick tip on auto expenses: If you bought or leased a vehicle for your small business last year, you may qualify for the Section 179 tax deduction. This tax code allows owners to deduct all or part of a qualifying vehicle’s acquisition costs the year it’s placed into service. The owner must use a vehicle for business purposes at least 50% of the time to qualify. Qualifying vehicles are divided into three categories by the IRS: cars and luxury vehicles, SUVs, and other vehicles.
      • Cars and luxury vehicles have an $18,200 deduction limit and must weigh no more than 6,000 lbs.
      • SUVs have a $26,200 deduction limit and must fall between 6,000 - 14,000 lbs.
      • Others have a standard Section 179 deduction limit of $1,050,000; these vehicles typically include passenger vans, pickup trucks, and cargo vans.

Is all this car talk driving you crazy? I’ll add a list of the most common cars and SUVs that small businesses use to qualify for the Section 179 tax deduction in the show notes. Getting back to tax deductions that you should keep in mind:

  • Meals and Entertainment - If you are away on business and you buy food or indulge in business-related entertainment, you may be able to write off up to 50% of your spending. The entertainment must be a regular expense and either take place in a professional setting, such as before or after a business meeting.
    • If you’re more likely to run your receipts through the wash than keep them organized (and dry!), you need the following tip:
    • To deduct a meal expense, you must have five components to ensure the receipt holds up:
      • The name of the restaurant
      • The amount spent
      • And the date you ate there. Luckily, all of this information will be located on the receipt itself!
      • The last two pieces of information you’ll need are who you met with and the business reason for the meal. Write those two details down on the receipt, take a picture of it, and upload it to the cloud so that you don’t watch your deduction wash away.
  • Paid Commissions - This deduction typically pertains to Brokers, as it relates to paying an agent their commission. In this case, you can take a deduction when paying out a commission since it is technically a business expense.
  • Office Supplies - Office supplies are sneaky, and when you add up the pens, papers, and other supplies needed to support your business, it can cost a pretty penny. Record these purchases so you can deduct them later on.
  • Home Office Use - This one is key in the age of remote work. If you conduct the majority of your business from a home office, you may qualify for this deduction. Your home office must be a regular place of business and must be in a dedicated space within your home. If you meet clients in a different office, keep paperwork there, or set appointments elsewhere, then you would not qualify for this deduction. If you do meet the requirements, however, then you can deduct some utility and maintenance expenses.
  • Memberships, License Fees, and Legal Fees - Fees that you pay attorneys, consultants, accountants, or payroll are all deductible, as long as they are business-related. MLS fees, NAR association fees, professional organization fees, and licensing fees are all deductible.
  • Real Estate-Related Tech Tools - To remain competitive, agents need to utilize CRMs, MLSs, Chatbots, and other website/marketing tech tools. Buying these tools can be expensive, so be sure to save your receipts after making these purchases.

To stay organized, we recommend opening a separate bank account for business expenses. It’s best practice not to intertwine personal and business funds, which can get very messy and illegal even for the most organized agents.

Taxes can feel daunting, especially if you’re a new real estate agent filing out taxes as an independent contractor for the first time. They aren’t fun but are vital to the health of your community, state, and society.

The key takeaway of this episode is that you should prioritize being prepared and staying organized throughout the year so when tax season comes, you are ready. If you have the money, consider hiring an accountant. This will allow you to focus on your business as the real estate industry enters the busy spring and summer months.

For more information about tax preparation as a real estate agent, check out our recent blog Filing Taxes as a Real Estate Agent in 2022 and How Do Real Estate Agents File Taxes?

Brett: That’s it for this episode, thanks for listening! If you enjoyed the podcast, you can subscribe to us and leave a review on your podcast player of choice. Shop Talk is a production of The CE Shop.