Properly documenting agent tax deductions is a year-round endeavor. Whether the agent or the agent’s accountant files the forms, organizing and documenting on a regular basis is the best way to maximize proper real estate business tax deductions. There is little excuse for procrastination with the multitude of software choices that can greatly enhance orderly accurate record keeping.
Business Related Software Deductions
Every agent is different in what tax/deduction software is intuitive and easy for them to learn and use with minimum frustration. One should not assume just because tax software is well-known and highly used that it will be the right choice for them personally. Many developers have a 30 day “trial” for their software. Each agent can know the software works for them before purchase. The cost of any such software is deductible.
Vehicle Mileage and Expense Deductions
There are two mutually exclusive methods each agent must choose from when deducting business mileage and business related vehicle expenses. One option is the “Standard Mile Deduction” which uses a new yearly multiplier for each mile traveled. Mileage tracking tools are available to simplify the process. Beware, however, that the IRS always hunts for personal miles improperly submitted as necessary business miles.
The other alternative for deducting business vehicle use is the “Actual Expense Deduction.” Choosing this method, the agent may deduct a percentage of car payments, auto insurance, maintenance, and depreciation. Detailed and highly organized documentation is a must if this method is used. Because a high rate of abuse in the past by fliers, the IRS is particularly vigilant in watching for pushing “business” deduction percentages beyond reason.
Deductions for Licenses, Fees, insurance and Memberships
Agents’ State License renewal fees, MLS dues, and other common business costs are deductible. Keep in mind, however, there are some minor restrictions and limitations, such as the non-deductibility of fees attributed to political concerns. All insurance that directly and solely protects agents’ business is deductible, including errors and omissions insurance.
Costs for real estate classes, personal coaching and trade shows all allow for a variety of tax deductions. Be informed, however, that with all these deductions, they must be submitted to the IRS in the exact correct fashion, often involving IRS codes.
As with all previous discussed areas, therefore, year round consistency and documenting while you go is a far more effective way to maximize your net income with proper tax deductions.