You might have experienced a moment about a month ago when the magic of the holidays had completely disappeared but snow stubbornly remained on the ground in ugly patches — then someone mentioned the word “taxes.”
In a jaw-dropping, head-spinning realization, you tried to compute how it could have possibly been a full year since you last filed, and why tax season feels almost as never-ending as the NFL schedule. (Or maybe that’s just me.)
The only saving grace pulling you out of this miserable paper-shuffling, headache-inducing existence is a pretty shiny silver lining: deductions. And right now, it’s crunch time.
Some people might not think it’s worth their while to save receipts and calculate their deductions — after all, time is money.
[Tweet “Many agents probably aren’t fully aware of the money they’re losing by neglecting deductions.”]
These individuals probably aren’t fully aware of the money they’re losing by neglecting those deductions, though. The minutes here and there you spend staying organized throughout the year will likely yield bigger rewards than if you were to suddenly foray into the world of extreme couponing.
Because real estate agents are almost always independent contractors, they are eligible for savings on self-employment taxes as well as the federal and state tax savings available.
What to deduct
As Stephen Fishman wrote in 2011 — and still applies today — “any expense for your real estate business is deductible if it is:
- ordinary and necessary;
- directly related to your business; and
- reasonable in amount (see: Internal Revenue Code Section 162).
An expense doesn’t have to be indispensable to be necessary; it need only help your business in some way — even if it’s a minor way. A one-time expenditure can be ordinary and necessary.”
For agents and other self-employed types, there’s some gray area when it comes to items that you use personally but also serve as business tools — like your smartphone, a laptop or desktop computer in your home office, or the camera you break out for both branding videos and family photos.
[Tweet “An expense doesn’t have to be indispensable to be necessary.”]
Are there limitations on how much you can deduct?
The IRS doesn’t place any parameters around what you can deduct — however, if it considers your expenses “unreasonably large,” you might get some pushback from the government agency regarding all or some of your deductions.
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And it probably goes without saying that you can’t deduct personal expenses. If you really only use that laptop for Facebook and as a repository for your music collection, it’s not actually a business expense.
There’s some overlap, of course — you might use a laptop that’s primarily for business to manage your iTunes library — so be prepared to ballpark how much you use a particular expensed item for business versus for pleasure. As in, giving a percentage.
Checklist of deductions
These are some common categories of expenses you’ll want to keep an eye on to make sure you didn’t miss a trick for 2015:
Branding and advertising expenses
- Websites
- Domain name fees
- Hosting fees
- Design fees
- Advertising
- Billboards
- Newspapers
- Radio
- Television
- Direct mailing expenses
- Fliers
- Postcards
- Postage
- Mailing list purchases
- Emailing expenses
- Software
- Newsletter design
- Newsletter content
- Creative fees
- Content
- Editing
- Design
- Social media management
- Promotional materials and swag
- Business cards
- Pens
- T-shirts
- Branded gifts
- Signage
- Networking event fees
- Entry fees
- Travel
Office expenses
- Home office expenses (if you qualify — you must have a designated area in your home used exclusively for conducting business, and you must either use your home as your principal place of business or be able to show that you use your home office “substantially and regularly”)
- You can claim a deduction based on the size of your home office — the percentage of your home that it occupies
- Office supplies
- Postage
- Envelopes
- Paper
- Folders
- Pens
- Printer ink
- Office furniture
- Desks
- Chairs
- Bookshelves
- Filing cabinets
- Business office expenses
- Desk fees or other office rent/mortgage
- Janitorial fees
- Office supplies (see above)
- Office furniture (see above)
- Client refreshments (coffee, cookies, etc.)
- Software
- Cloud storage
[Tweet “Home office deductions: You must have a designated area in your home used for business.”]
Professional expenses
- Association dues and fees
- NAR
- State associations
- Local associations
- Independent brokerage associations
- Franchise fees
- MLS fees
- Chamber of Commerce registration/membership fees
- Accounting or bookkeeping fees (including for tax preparation)
- Banking fees
- Business licenses
- Errors and omissions insurance
- Legal fees
Travel expenses
- Air fare for business travel
- Cab fares for business travel
- Car rentals
- Car/truck expenses
- You can deduct 55.5 cents for each mile driven for business (and include car wash and tire expenses), or tally a business rate for:
- Auto depreciation
- Insurance
- Car loan interest
- Lease payments
- License plate/registration fees
- Parking fees
- Toll fees
- Car washes
- Tires
- Maintenance/repairs
- You can deduct 55.5 cents for each mile driven for business (and include car wash and tire expenses), or tally a business rate for:
- Lodging
- Meals
- Parking/tolls
- Public transportation
- Tips
Communication expenses
- Cell phone
- Cell phone service
- Answering service
- Fax service/expenses
- Internet service
- Office phone line/telephone service
- Toll-free numbers
Equipment
- Computer/laptop
- Computer software
- Calculators
- Cameras
- GPS
- Printer
- Scanner
- Tablet
- Memory storage (hard drives, flash drives)
- Equipment repair
- Lockboxes
- Maps or map books
- Staging items or furniture
- Tape measure
Business expenses
- Referral fees
- Commission rebates
- Taxes paid
- Appraisal fees
- Courier or delivery service fees
- Home repair fees
- Home warranty fees
- Home inspection fees
- Notary fees
- Open house expenses
- Staging fees
Employees
- Payroll
- Unemployment taxes
- Sales assistant wages
- Virtual assistant wages
- Administrative fees or wages
Retirement, health care and other insurance
- Self-employment pension
- IRAs/401(k) contributions
- Health insurance premiums
- Business liability insurance
- Business equipment insurance
Interest
- Interest on business loans
- Interest paid on business credit cards
Continuing education
- Subscriptions to professional journals or magazines
- Books
- Newsletter subscriptions
- Sales training or coaching
- Sales seminars
- Textbooks or reference books
- Travel to business conventions
- Convention fees
- Transportation
- Lodging
- Food
- Trade publications (like your Select membership)
[Tweet “Remember to deduct your CE expenses: subscriptions, books, newsletters, training, etc.”]
Other
- Business gifts (up to $25)
- Business meals and entertainment (only 50 percent deductible)
How much can you expect to save?
That looks like a lot of money to save — and it can be. A good rule of thumb is that for every dollar you deduct from your taxable income, you will save about 50 cents in taxes (between federal, state and self-employment savings).
[Tweet “For every dollar you deduct from your taxable income, you will save about 50 cents in taxes.”]
Those savings vary depending on your total income and additional income, but if you are diligent about keeping track of your expenses throughout the year, you won’t regret it come tax season!
Additional resources:
Internal Revenue Code Section 162
Internal Revenue Code Section 179
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