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What can a realtor write off?

As a business owner, you'll want to utilize all tax write-offs. You should always consult with a CPA. We've outlined 12 tax deductions you can send to your CPA when it's time to file.

Deduction #1: Commissions Paid

The commissions you pay to other agents or employees that work with or under you are generally fully deductible business expenses. You should not overlook this deduction since commissions can add up quickly!

Deduction #2: Home Office

Most of us conduct business out of our homes (or parts of them). You can take advantage of the home office deduction – unless you are deducting desk fees already (see deduction number three). Like the vehicle deduction, the home office deduction offers two options: the standard or simplified method. Most self-employed people find that the simplified method maximizes their deduction. However, before pursuing this option, know that your home office has to be used regularly and exclusively as the principal place of business. Your bed, porch swing, and kitchen table do not count as deductible expenses.

Deduction #3: Desk Fees

Your desk fees are deductible if you hang your license under a national franchise or with an independent broker. (Remember, though, if you’re taking the deduction for brokerage desk fees, you will not be able to claim the home office deduction mentioned above.)

Deduction #4: Education and Training

Because the industry changes rapidly, continuing education is a great way to stay competitive. You may be able to deduct your registration fees, related materials, and certain travel costs. There are several requirements:

  • The training and education cannot qualify you for a different trade or business.

  • The training cannot be to meet minimum educational requirements.

  • The training course(s) must maintain or improve the skill related to your real estate field.

Deduction #5: Marketing and Advertising Expenses

Digital and online advertising costs are quickly becoming the most significant area of spending. Advertising expenses such as marketing materials, staging, photography, and signage can all be deductible through the Internal Revenue Service’s advertising expense deduction. This is one of the best deductions because of its general requirements!

Deduction #6: Standard Auto

Between showings, listing presentations, and more, miles can rack up fast. With the standard auto deduction, every mile you drive for your business can be deducted from your taxes. If you drive 10,000 miles or more annually for your real estate business, you’ll likely get the most significant tax benefit by taking the standard mileage deduction. The standard mileage rate for the 2021 tax year is $0.56 per mile. (your CPA will know the 2022 tax mileage) However, the actual cost method may yield a higher deduction if you’re a lower mileage driver or have especially high car payments.

Deduction #7: Office Supplies and Equipment

Whether you’re taking desk fees or home-office deductions, you can still claim other office-related expenses, including stationery, photocopies, and consumables needed to run your business. Furniture, fax machines, copiers, computers, or your telephone (and associated bill) can also be expensed in full or depreciated over several years. You can fully deduct this expense if you have a dedicated landline telephone for business. You can remove the business percentage of that expense if you use your cell phone only.

Deduction #8: Meals

You can deduct meals as a business expense in two situations: when traveling on business and dining with clients or other professionals to conduct business or generate referral business. For the 2021 (and 2022) tax years, meals provided by a restaurant are 100% deductible due to a COVID-19 relief policy designed to help restaurants.

Deduction #9: Fees, Licenses, Memberships, and Insurance

Annual fees are a common cost of doing business and are deductible. In real estate, that means your state license renewal, professional memberships, and MLS dues. An important caveat about professional memberships: the portion of your membership dues attributable to lobbying and political advocacy is not deductible. General business insurance and errors and omissions (E&O) insurance are both fully deductible business expenses. Additionally, you can deduct real estate taxes necessary for your business, and self-employed individuals receive an income tax deduction for half of the self-employment taxes.

Deduction #10: Software and Business Tools

Any software needed to run your business is fully deductible – including lead-generation subscription services such as customer relationship management (CRM) software. Products that help you automatically track your expenses and mileage may also be fully deducted.

Deduction #11: Gifts

All of the fantastic client gifts that you gave out over the year are deductible as long as you follow the IRS’s stipulations:

  • You deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during the tax year.

  • If you and your spouse give gifts to the same person, you are treated as one taxpayer.

  • Incidental costs (engraving, packaging, shipping) are not included in the $25 limit if they don’t add substantial value to the gift.

  • Do not consider gifts $4.00 or less that you have your business name permanently engraved on the item you distribute regularly.

  • You have records proving the business purpose of the gift as well as details of the amount spent.

Deduction #12: Health Insurance

Health insurance premiums paid for you and your family may be deductible if you and your spouse are not eligible for an employer-sponsored health plan. This includes medical insurance, dental, and long-term coverage.

Finally, it is always important to remember that your real estate expenses must be directly related to your ordinary business and necessary to be deductible. For a detailed list of tax deductions, refer to IRS Publication 535, and don’t forget to consult your legal or financial adviser and verify all information to your satisfaction.

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