Published by Kartik Subramaniam
When you start your career as a new real estate agent you should know that you will be paid commissions on the sales of property, and you will receive a 1099 at the end of the year. 1099’s are used when anyone is considered self-employed or an independent contractor. Realtors are considered an independent contractor or self-employed individuals running their own businesses. As a realtor you will be affiliated with a brokerage, however, you won’t be considered a W-2 employee for that brokerage. No taxes will be paid throughout the year so it is important to understand what you can write off when it comes time to filing your taxes.
Your tax preparer will know what can and cannot be deducted but it’s important to know these things before going into this line of work so you can be prepared and keep track of your deductions from the beginning. It’s important to keep evidence of the things you are writing off in case you are audited. The most common expenses that a realtor can deduct are mileage and marketing materials. Realtors are known to drive a lot so keeping track of your mileage is a must. Any marketing materials you purchase can be written off too. Marketing and advertising materials are a common cost associated with starting out in real estate and typically continue for years to come. This can include business cards, open house signs, flyers, staging, photography, and signage. All of which can be deductible through the Internal Revenue Service’s advertising expense deduction. This is one of the best deductions because of its broad requirements!
When you first start out as a realtor, there are costs you should be aware of. After you get your license, you will then be required to join the California Association of Realtors and the National Association of Realtors. You’ll also need to pay the MLS (Multiple Listing Service) to have access to the listings and use the database. Because most listings have a lock called Supra E-Key, you’ll need to pay to have access to the Supra E-Key as well. Your brokerage may charge a desk fee and there may be other monthly dues, all of which are deductible. All these costs a realtor can write off as a business expense.
In light of recent events in the world, it’s important to consider the costs associated with maintaining a home office. With the flexibility of a realtor’s schedule and the lack of need for an office, realtors are most often operating out of their homes. Write offs associated with operating your real estate business from your home can include the cost of the phone, computer, internet, and utilities.
When you connect with clients and help them in the purchase or sale of a home, it is customary to buy gifts for your clients. Or if you are meeting a client in person for the first time, you might be meeting them for coffee or you may be out and about looking at homes with your client and take them out to eat. You should know there is a limitation to this write off. Gifts are deductible to the extent of $25 per person per year and meals are only 50% deductible. All of these are considered business related expenses and can be deductible against your income.
Once your business gets up and running you may start paying commissions to other agents or employees that work with or under you. This is a deduction you should not overlook since commissions can add up quickly!
Keep in mind that to be deductible, the expense must be directly related to your real estate business. Always check with your tax consultant and for a detailed list on tax deductions, refer to IRS Publication 535. Careful record keeping and knowing your eligible write-offs are key to getting all the tax deductions you're entitled to.
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