Yay tax season…said no one ever! Brokerages and agents registered as partnerships or sole proprietors, however, could see significant tax savings in the new year under Trump’s recent proposals for federal tax reform.
In a statement delivered in September 2017 to supporters at the Indiana State Fair Grounds, Trump declared his nine-page proposal would be “…the lowest top marginal income tax rate for small and midsize businesses in this country in more than 80 years”.
Included among a number of federal tax proposals, Trump promises a 25% tax rate for pass-through businesses (sole proprietorships, partnerships). With 95% of US businesses classified as pass-through, the tax savings for local brokerages and partnerships could be big.
Even if you’re operating as an independent contractor, there may be some good news for you as well. While vague and somewhat challenging to implement, a number of Trump’s proposals are in fact aimed at helping individuals, married couples, and those with dependents.
Tax Savings Guide For Real Estate Agents
Tax planning and preparation is a time-consuming but necessary part of your real estate business. This guide will cover the basics of tax planning so you can enjoy the most tax savings every year, and save time!
TAX COMPLIANCE CALENDAR
Know the deadlines for all your dues.
In each state, there are specific deadlines for agents to submit their tax forms. You’ll need to know the respective due dates for the following in your state:
- 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 WILL NEED EACH 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
Tax Deductibles For Agents
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: Seminar or conference, books, a web tutorial 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
Now here are 5 really easy ways for agents to enjoy more 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:
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Tip #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.
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Tip #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 a monthly billing, for instance. Switching to an annual billing would provide you with a significant discount.
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Tip #3) Track mileage use and expenses throughout the year.
Listing presentations, showings, 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.
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Tip #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
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Tip #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 savings for small business owners and independent contractors don’t come often. The proposals to tax reform announced by President Trump, however, could help agents and brokerages enjoy healthier tax savings in years to come.
Tax planning isn’t sexy, but preparation is the best way to capitalize on the potential savings offered by Trump’s recent proposals. Agents operating as independent contractors can best capitalize on these changes by being informed and prepared.
Finally, everyone can benefit from professional tax accountant services. Seek out a professional, even if you’re not in trouble with the IRS. Expert tax advice today can give you a long-term vision for building lasting wealth tomorrow.
