Taxes can be stressful for realtors and real estate agents. There’s a lot to figure out, including figuring out your income taxes without errors and calculating your deductions. Many realtors and real estate agents are considered self-employed individuals by the IRS, so it’s more complicated than a simple return.
Instead of stressing at tax time, prepare your taxes all year and make them a contributor to your real estate business success.
What Is the PATH Act
The Protecting Americans from Tax Hikes (PATH) Act was enacted by the Obama Administration in 2015 to expand or renew tax credits for many taxpayers, including business owners like realtors.
Among these changes is the Section 179 deductions, which allow you to deduct a lot of work-related expenses. There are limitations, but here are some common deductions you may be able to claim:
- Ongoing education, training, or coaching
- Marketing assets, such as open house signs, sale flyers, business cards, and digital marketing campaigns
- A vehicle used for local business purposes and its related expenses like gas and maintenance
- Renewal and licensing fees, association dues, Multiple Listing Service (MLS)
- Utilities that are required to work, such as internet and electricity
- General liability and professional liability insurance
- A portion of your home office space if used for work
- Travel expenses for work, such as airfare or accommodation
There are many possible deductions, but these often apply to realtors and real estate agents.
How to File Taxes as a Realtor
Here are the steps to file your taxes as a realtor or real estate agent:
Compile Your Records
Gather all of your tax records, including your earnings, expenses, and receipts, to have them ready to reference while filing. You may want your old tax documents if you need to check information.
Understand Your Employment Status
Many realtors and real estate professionals file as self-employed taxpayers, which is different than filing as an employed individual.
When you’re employed, your employer automatically withholds tax payments and subtracts them from your wages. Then, when you file your taxes, you can verify that the correct amount has been paid.
When you’re self-employed or working as a contractor, you are responsible for paying quarterly tax payments and declaring your earnings, just like an S corp or another business entity.
You can report your individual income tax on the Form 1040. As a contractor, you may have your income information provided with a 1099-MISC. You’ll also use the Schedule SE for your tax liability and the Schedule C to calculate your profits.
In addition to federal taxes, you may have to pay state income tax. Some states don’t have income tax, so it’s important to check the rules in your state to file correctly.
File Your Taxes
You can file your taxes on your own using real estate accounting and tax software or hire an accountant, which can be expensive. Either option will ensure you’re paying your taxes correctly, but tax software is the more cost-effective method.
Pay Your Quarterly Taxes
You’re responsible for your quarterly tax payments ahead of the tax deadline, The quarterly deadlines are:
- January 15 for income earned September 1 to December 31.
- April 15 for income earned January 1 to March 31.
- June 15 for income earned April 1 to May 31.
- September 15 for income earned June 1 to August 31.
Tips to File Your Taxes as a Realtor
Here are some tips to make filing more efficient:
Organization is crucial to a smooth tax season. You should have all of your tax forms in a safe place that’s accessible and easy to remember. If you prefer, store all your documents in cloud storage that you can access across devices.
Take Your Time
Give yourself plenty of time for your taxes. Rushing often leads to mistakes like a missing or illegible name, a forgotten postage stamp, miscalculated income or expenses, a missing signature, missing forms, or underpayment and underreporting, which can lead to penalties.
Include Your Deductions
Your deductions are designed to reduce your tax liability, so make sure to include all of them. Don’t focus on big expense like a work vehicle only. Small expenses, such as office supplies, can add up quickly. Otherwise, you could end up overpaying your taxes.
Don’t Forget Tax Credits
You may be eligible for certain tax credits, such as the Child Tax Credit, the Education Credit, or the Saver’s Credit. Check to see which apply to you and be sure to include them.
Prepare for Tax Season as a Realtor
Filing your taxes is no picnic, but preparing all year long puts you in a good position to avoid mistakes, count all your deductions, and file efficiently.