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Working in real estate can definitely be an exciting profession. But it can also be very complex when it comes to taxes. As a licensed real estate agent, you may be considered as self-employed. Taxes for those who are independent contractors and self-employed can be more complicated. One aspect you have to review carefully is expenses. You always want to make sure you’re writing off as much as possible so that you can save money on taxes. But you also want to make sure your write-offs are acceptable by IRS standards.
What you can and can’t write off depends on the job you do. When it comes to real estate, there are common expenses you have that you should write off in your Schedule C. Keep in mind that regardless of what you do, expenses should be:
Ordinary and necessary
Directly related to your business
Let’s review the most common write-offs for real estate agents:
Car: Most real estate agents need a car to get to-and-from showings and meetings with clients. You can expense your car expenses related to business travel. There are two ways to do this:
Standard mileage rate: Using this method, you would multiply your business mileage by the IRS approved rate, which was 57.5 cents in 2015. This rate includes insurance, gas, maintenance and repairs, and depreciation.
Actual costs method: Using the actual costs method, you would have to calculate the actual costs to you of using your car for business. You can figure this out by multiplying the percentage of time you use your car for business by your total expenses.
Cell phone: As a real estate agent, you probably need a cell phone to contact prospective buyers and sellers. You can deduct this expense by calculating the percentage of time your cell phone is used for business by your total cell phone bill.
Home office: If you work from home, you can deduct part of your home office expenses. This applies to both renters and homeowners. Similar to car expenses, there are two methods. You could use the simplified method, where you use the IRS approved rate multiplied by your office square footage. You could also use the actual costs method, which involves more calculation. To learn more about home office expenses, click here.
Legal services: Often times, real estate agents need legal help. For any legal services you hire that’s related to business, you can write these expenses off. This also applies to accountants and any other professionals where you seek their services for your business.
Office supplies: Any office supplies can be written off, including pens, papers, and business cards. An office supply is considered anything that can be used up in less than a year.
Meals: Meals during business travel related to real estate can be deducted. If you are having a meal with others, the primary purpose of the meal must be to discuss business. Also, you may only deduct 50% of any business meals.
Insurance: You can write off insurance you buy for your business, such as business liability income or property insurance. If you have a home office, you can also write off part of your homeowners insurance. If you are considered self employed, you can also write off your health insurance.
Deciding what you are eligible to write off as a real estate agent can be tricky. As a rule of thumb, any expense that is directly related to the on-going operations of your business can be written off. However, use your judgement. The IRS requires that expenses be ‘necessary’ to be eligible.
To learn more about deductions, visit the IRS website here.