One of the benefits in being an independent contractor, such as a Real Estate Agent, is the ability to deduct business expenses on your tax return that allow you to lower your tax liability and keep more of your earnings. I often get questions from my real estate agent clients as well as other independent contractors that goes along the lines of “What expenses can I deduct on my tax Return”?
That’s always a hard question to answer. While there are some common expenses that agents typically deduct, real estate agents, like other business owners, can deduct business expenses that are considered to be ordinary and necessary, as defined under Section 162 of the Internal Revenue Code. Ordinary means it should be common and accepted in your industry and an expense is deemed necessary if is appropriate and helpful in carrying out your trade or business. As you can imagine, this covers a wide range of expenses. Here are some common deductions that real estate agents may be eligible to claim:
- Vehicle and Travel Expenses: Real estate agents who travel locally or out of town for business purposes can deduct certain travel expenses, including:
- Mileage or actual expenses related to using a personal vehicle for business trips. This can be a major cost and deduction for agents.
- Airfare, lodging, and meals when traveling for business.
- Parking and tolls related to business travel.
- Home Office Deduction: If a real estate agent has a dedicated home office space used exclusively for business, they may qualify for the home office deduction. This deduction allows for a portion of home-related expenses, such as rent or mortgage interest, utilities, and property taxes, to be deducted.
- Advertising and Marketing Costs: Agents have costs of marketing and promoting their business that can be deducted. These include both the marketing of specific properties as well as building their brand.
- Real Estate License Fees: Real estate agents can deduct the costs associated with obtaining and renewing their real estate licenses.
- Insurance Premiums: Deductible insurance premiums may include professional liability insurance, business insurance, or health insurance if the agent is self-employed.
- Phone and Internet Expenses: A portion of phone and internet expenses used for business purposes can be deducted.
- Education and Training: Costs related to continuing education and training required to maintain or improve professional skills may be deductible.
- Meals: While subject to certain limitations, real estate agents can deduct a portion of meal expenses related to business meetings or client interactions.
- Commissions and Fees: If a portion of a real estate agent’s commissions and fees is paid to a brokerage or team, that portion is generally deductible as a business expense.
- Legal and Professional Fees: Expenses related to legal and professional services, such as legal advice or accounting services, may be deductible.
- Depreciation: Real estate agents who own their office space or equipment may be able to claim depreciation deductions over time. This includes your vehicle if you opt for using actual expenses for your vehicle related costs.
- Self-Employment Taxes: The bad news is that real estate agents are responsible for Self-Employment taxes of up to 15.3% on each dollar earned. The good news is that they can deduct the employer-equivalent portion of their self-employment taxes when calculating their adjusted gross income.
This is just a small listing of expenses that real estate agents, and other independent contractors may incur as part of running their business. It’s essential to maintain detailed records of expenses and keep all necessary documentation to support your deductions. Additionally, tax laws and regulations can are constantly changing, so it’s advisable to consult with a tax professional or accountant who specializes in small business taxation to ensure compliance with current tax laws and maximize eligible deductions.
At my firm, we work with real estate agents every day, helping them to stay out of trouble while finding ways to minimize their taxes legally. If you’re interested in finding out if we are a good fit in working together, let’s talk. You can give me a call at (972) 821-1991 or get directly on my calendar at https://jablonskyandassociates.com/contact/.
