Tax Tips for Real Estate Agents
With Tax Season rapidly winding to a close, we thought a reminder about some of the tax regulations affecting real estate agents would be appropriate. Enclosed you will find topics regarding the forms you will use to file your net profit or loss, common items you can expense, and limits you can claim to reduce your tax liability.
Self-employed individuals need to report their business income and expenses separately from their other income on a Schedule C, Profit or Loss from a business. On the Schedule C, net profit is subject to income tax as well as self employment tax. The profit or loss of your business is added to or subtracted from other income or losses on your form 1040 to compute your Adjusted Gross Income (AGI). The Schedule C is where you will deduct allowable business expenses from your business income.
As a realtor, one of the major expenses you can deduct is the business use of your car. You may deduct either the standard mileage rate or actual expenses for the amount of business use. Standard mileage is a flat rate of 40.5 cents a mile for use up to 8/31/2005 and 48.5 cents a mile after that. If you don’t use the standard mileage rate you may be able to take actual expenses including depreciation, insurance, lease payments, registration, repairs, tires, garage rental, gas, oil, and licenses. The depreciation and Section 179 deduction, which allows you to take all or a portion of the business cost of a qualifying vehicle in one year as opposed to depreciating over multiple years, is limited based on vehicle type and business use percentages.
For new or returning clients you may choose to offer new home or closing gifts. Please note that for each client, you may deduct up to $25 per client per year for these gifts, not to exceed the actual value of the gift.
Business and entertainment expenses are deductible as well. Travel away from home for business, conventions, or receptions are deductible expenses. Entertaining customers at restaurants or clubs are deductible on your schedule c as well. Good recordkeeping is critical to claim these expenses including who the parties were and purpose of the expense. These are not noted on your return but are needed for any audit purposes.
For the self-employed, you are also entitled to a health insurance deduction. For 2005, this deduction is 100% of the amount paid for medical and qualified long-term care insurance for you and your family in a plan established under your business.
This information is provided to you by Liberty Tax Service, the nation’s 3rd largest tax preparation expert. For questions or assistance with your returns, please call 866-871-1040 which will ring the office nearest you. Free mileage books for your driving records and pamphlets for your clients outlining “The Tax Guide for Home Buying” are available free of charge at (803) 865-3334. Realtors responding to this article at (803)865-3334 will receive an added benefit of having their returns prepared for them at 40% off when they reference this article from the Real Estate School