“Yay, Tax season!” – said no one, ever. But despite our collective frustration, tax planning and preparation are a necessary and expected part of every business, and the real estate industry is no exception.
With that in mind, it doesn’t have to cause headaches… in fact, with the right tips and strategies, tax season can actually be quite rewarding!
In this guide, we’re covering the essential aspects of tax compliance, tax documents, and tax savings that real estate agents should know to maximize their savings in 2023.
Tax Compliance
Every state has specific deadlines for real estate agents to submit their tax forms. Below are some of the tax-related tasks that you need to complete within specific timelines:
- Q4 Estimated Tax
- 1099 submission deadline for all contractors working for you
- 1099’s must be filed with IRS
- 1040 and CA-540 Tax Returns due
- Q1 Estimated Payments Due
- Franchise Tax
- LLC Fees Due (if you are registering a limited liability company)
Tax Documents You Need Every Year
Stiff penalties for missing a deadline or failing to provide documentation can follow if your taxes are poorly prepared. Whether you track your taxes yourself or you work with a tax professional, be sure to maintain records of the following documents:
- Form 1099
- Form 1098
- W-2
- K-1
- Signed, dated, and itemized receipts for donations throughout the year
- Receipts from all Fixed Assets Purchased
- Previous Year Tax Returns
- Estimated Quarterly Tax Payments for the previous year
2023 Tax Savings for Real Estate Agents
Taking the required measures while implementing tax compliance strategies can undoubtedly result in savings. Agents acting as independent contractors are eligible for the following tax savings:
- Professional dues: realty state/municipal license, MLS board fees
- Daily operating expenses: home or commercial office space
- Travel: All business-related travel expenses. Calculated by standard mileage or by actual cost. This includes insurance, tolls, and auto maintenance costs
- Donations: Yes, charitable donations of food, clothing, and money can be deducted.
- Continued education: Seminars or conferences, books, and web tutorials are all eligible deductibles
- Client meals and entertainment: Cost of entertaining clients you are showing homes, as well as meals and entertainment you consume during business
5 Tips To Maximize Your Tax Savings
Rutenberg Realty expert, Jennifer Chiongbian has been in the real estate business for more than 10 years.
Her tax savings advice is a great place for beginners: watch this video, and then scroll below to get a summer of all 5 tips!
1) Keep digital copies of your receipts.
Scan or photograph your receipts throughout the year. Create a folder on your Google Drive to store your receipts. Label each receipt specifically with the name of the purchase or store, rather than a number. This will make it easier to search your folder should a dispute arise with the IRS later.
2) Check your receipts for any large transactions.
Large transactions can be deductibles if they are for business. Take note of these expenses over the course of the year. This includes any monthly online subscription services you may be paying for your business.
You may be paying for a WordPress website on monthly billing, for instance. Switching to an annual billing would provide you with a significant discount.
3) Track mileage use and expenses throughout the year.
Listing presentations, showings, and meetings with mortgage brokers: your fuel costs will add up over the year. Create a spreadsheet to keep track of your travel expenses, which can be claimed as deductibles.
4) Create an annual expense report.
You can increase your tax savings by preparing an annual expense report. There are free expense report templates available online
5) Consult a tax professional.
As your real estate business grows, tax planning will become more important and time-consuming. An experienced tax professional can not only advise you on tax savings shortcuts but long-term strategies for building wealth.
Summary
Tax planning and preparation may not be the most exciting part of running a business, but preparation is the key to capitalizing on potential savings. By staying informed and organized, you can can best maximize your return.
Furthermore, seeking professional tax services is recommended for everyone since expert tax advice can lead to a long-term vision for building lasting wealth.
As your real estate business grows, tax planning becomes more critical and time-consuming. A qualified tax professional can advise you on tax-saving shortcuts as well as long-term strategies for building wealth.