Whether you do your taxes yourself using an online service such as TurboTax, or if you have a CPA to do them for you, here are some tips specifically for real estate brokers to keep in mind.
Key Takeaways
- Real estate brokers should track and deduct mileage for business-related driving, including showing properties and attending meetings, using a cloud-based app for convenience.
- Team members should be correctly classified as either W-2 employees or 1099 independent contractors based on their roles; misclassification can lead to legal issues.
- Gifts for clients are deductible up to $25 per person or $50 per couple per year; larger items may not be fully deductible.
- Independent brokers can save for retirement through IRAs or Roth IRAs, with Roth IRAs being beneficial for those in lower tax brackets.
- Tax extensions are available if needed, but an estimate of taxes owed must be paid by the original deadline; professional help can simplify the process and ensure accuracy.
Important tax tips for North Carolina real estate brokers to remember
Here are some tax tips from real estate and tax professionals all over the country.
#1: Don’t forget your mileage
All of the miles you drive showing properties and handling other real estate business are deductible, and it’s something many real estate brokers forget about, according to Thomas J. Williams, an enrolled broker and tax accountant who operates Your Small Biz Accountant, LLC, a virtual boutique practice with a focus on rental real estate. He goes on to explain: “Depending on where you work on a regular basis, the tax deduction may include attending meetings, putting up for-sale signs, running business-related errands, and completing floor time at your broker’s office.”
Pro tip: Keep track of your mileage for the upcoming year the easy way: Use a cloud-based app to store all your information.
2: Consider how your team members are classified
If you are like most real estate professionals who have team members, you have W-2 employees or 1099 employees—or a combination of the two. W-2 workers are employees whereas 1099 workers are independent contractors.
“If they are fellow REALTORS® and make commissions, they can be 1099s,” says Jeffrey A. Schneider, an enrolled broker who specializes in helping real estate brokers with taxes. He goes on to explain that those who are paid to perform other duties outside that of being a licensed real estate managing broker, may be deemed an employee and as such should be on the payroll.
The same applies if you hire someone to perform clerical or other office duties. According to Schneider, opting for 1099 classification just to avoid payroll-related issues is not a good strategy. It’s best to stay within the law by classifying your employees correctly when they are hired, or consulting a tax professional to make the proper changes to your payroll.
Free Income Guide: Learn how top real estate brokers increase their earning potential with this free North Carolina Real Estate Income Guide.
3: Pay attention to how you expense gifts
For real estate professionals, it’s important to remember the small touches that make your clients feel appreciated. But watch how you’re expensing gifts you buy.
“Gifts are a big issue,” says Schneider. “Gifts are deductible to the extent of $25 per person per year. Or, if your client is a couple, then it’s $50 per couple per year.”
That means if you’re buying a big-ticket item for your clients, like a washer or dryer, the amount you can claim is limited because it’s still classified as a gift.
4: You can still save for retirement
Because many real estate professionals are independent contractors, they don’t have an employee-based 401(k). But this doesn’t mean that you can’t save for retirement. Tax time is a great time to consider funding an IRA or a Roth IRA. The latter is a good option if you are just beginning your career and are still in a lower tax bracket so you may not be as concerned about your current tax bill.
Roth IRAs don’t provide a tax break at the time of the contribution, but when you pull the money out of the Roth IRA, you can usually do so without paying taxes on the money.
5: You can file an extension if you need to
Tax day tends to creep up on people, and if you haven’t been able to get organized before they are due, you can file an extension to submit your taxes at a later date. This does not, however, mean you can pay any money owed at a later time. If you file an extension, you’ll need to pay an estimate of what you think you’ll owe—and this needs to be paid on time. You can make adjustments when you actually file.
When in doubt, trust a professional
If you feel stressed or confused about doing your taxes, put them in the hands of a professional. He or she can answer any questions you might have, and trusting a pro might even save you money in the long run.
