Tax Tip #1: Cellphones
As a real estate agent, you constantly call people and make cold calls from home. However, making cold calls is not easy to do. It takes skill and patience to cold call, but it also requires some data.
If you spend hours cold calling to follow up with leads and close deals, your phone bill might be slightly higher than others.
However, because you are using the phone for business purposes, you can write it off as an expense.
Here’s the catch: If you only have one phone, the IRS will know that you use that phone for personal use.
You might be able to get away with still writing off that one phone. But if you were ever to get audited, you might be in serious trouble with the IRS!
Here are two things you can do to prevent getting in trouble.
#1 Write off a percentage
You want to track how much time you spend on business vs. personal calls.
If you spend 50% of your time making business calls on the phone, you will take 50% of your total bill and write that off as a tax expense.
#2 Buy another phone.
This is probably the easiest method to ensure you don’t get in trouble.
You’ll want to buy a new cell phone just for your business. This phone will be under your business name and paid for by your company.
The 2nd option is my recommended option because it has the most indicative of what you’re using the phone for, generating new business.
The IRS won’t need to investigate how much of your phone activity is business-related because the whole purpose of that phone is strictly for business.
Tax Tip #2: Car expenses
If you have a vehicle, then write off taxes for it. It does not matter if the car is in your personal name or business name.
Ultimately if you’re using it for your business, you should write it off as a tax expense.
You can still write off your vehicle in your business. What you are going to have to do is allocate your expenses to your business.
What does this mean?
Instead of paying for your vehicle out of your personal account, you will want to start paying out of your business account. This allows a clear money trail from your business account to the payment of your car.
What if I use my car for personal and business purposes?
As mentioned before, the IRS only will allow you to deduct business expenses. So you’ll want to know the percentage of how much you use the car for personal vs. for business.
For example, most people use their car for business 50% of the time and for personal 50%.
It’s important to track your vehicle usage. You can install apps on your phone like MileIQ to track how much time spent driving is for business purposes.
What can I write off?
When it comes to car deductions, you can choose to write off everyday expenses, or you can choose to take a tax deduction based on how many miles you drive with the car.
However, you can’t write off both everyday expenses AND mileage. You will have to decide which cost is the most expensive to write off your taxes.
An excellent way to check is by monitoring your mileage when driving for business purposes.
Once again, this means downloading apps like MileIQ or QuickBooks to track your driving throughout the year.
For everyday expenses, you can write off expenses like:
- Car wash
- Car Payment
Tax Tip #3: Marketing
Marketing is crucial to getting your name out there as a real estate agent. It helps increase your brand awareness and brings in more customers.
It is a necessary expense. Fortunately, the IRS realizes that and allows real estate agents like you to write off marketing expenses.
- Bandit signs
- Ad spend with Facebook, Google, etc.
- Open house signs
- Business cards
- Website development & hosting
You can deduct all these expenses from your gross income to help you save on taxes.
Tax Tip 4# Knowledge
As real estate agents, you always want to stay on top of your game and find out what’s working.
One of the ways you can do that is by attending real estate conferences, training events, or hiring a coach.
The good news is that you are allowed to write off any expenses you paid to make you a better real estate professional.
The kind of things you can write off include:
- Online courses
- Real estate books/Audible books
- Real estate events
If the training took place outside of your state, then you can also write off the travel expenses associated with it. For example, you can deduct the airfare, train, bus tickets, hotel, baggage fees, rental car, etc.
Tax Tip #5: Meals
Everyone loves to eat. And thankfully, as real estate agents, you can write off eating out too. With this tax deduction, you can invite your clients, friends, and family to lunch and write off the expense. The IRS allows you to write off meal expenses as long as the reason you are eating out is business related.
- You could meet with a client to discuss the property you are trying to sell.
- You could eat out with the previous house owner and discuss details about the property.
- You can meet up with your family to talk about a new house on sale.
If you’re detail-oriented, you can also record your talk with the client or take notes on what was discussed. That way, you have physical records proving that you were eating out for business purposes.
Having physical records only helps prove your case in front of the IRS on the slim chance that you do get audited by them.
When writing off taxes, usually, you can only deduct 50% of the cost of the meal.
However, the IRS is allowing Americans to deduct the full cost of food & beverage until this year (2022) ends.