Understanding Business Expenses for Real Estate Agents

Are you considering becoming a expense for real estate agent? How about already having a thriving client list? Whether you are a novice looking to enter the industry or an experienced professional, it's important to understand how business expenses work.

Real estate business expenses lower your taxable income, resulting in less taxes paid. However, not everything qualifies for a deduction. In this article, we'll explore real estate agent tax deductions, including common deductible expenses and the advantages of using a real estate agent expense tracker.

What is a Business Expense?

According to the IRS, an expense must be ordinary and necessary to be deductible. Ordinary means the cost is common in your field, while a necessary expense is one that is helpful and appropriate for your business. For example, the cost of having new business cards created would be both ordinary and necessary for a real estate agent. On the contrary, a new pair of sunglasses might not be eligible because it's not necessary.

Common Business Expenses for Real Estate Agents

Real estate agents have a variety of deductions they can take to lower their gross income. Let's cover a few of the common expenses you might come across:

When it comes to deciphering business expenses, there are gray areas, specifically in business travel. Let's say that you turn a three-day conference into a week-long trip. Only the expenses associated with the three-day conference would be deductible. This means your flights would be fully deductible, but only lodging, meals, and other expenses related to the business days are deductible.

Tax-Specific Deductions

The IRS likes to give small business owners tax breaks. Here are five tax deductions real estate agents can claim:

• Health Insurance – If you are self-employed, you may be able to deduct the cost of your health insurance.
• Home Office Deduction – The home office deduction gives you the ability to expense a portion of your rent, utilities, homeowners insurance, or mortgage payments if you have a qualifying office.
• Retirement Contributions – Contributions to a SEP or SIMPLE plan are deductible based on your income.
• Depreciation – If you purchase a new vehicle, you have the ability to write off the cost over its useful life or take Special Depreciation options.
• Qualified Business Income Deduction – This deduction is an automatic 20% reduction of your taxable income.

Just like there are exclusive tax deductions, there are a few items that are nondeductible. For one, meals are only 50% deductible. In addition, entertainment, such as sporting events or tickets, is not deductible, even if the event was attended with a client.

The Advantages of Using Real Estate Agent Expense Trackers

Keeping track of your tax deductions can feel overwhelming, which is why many real estate agents use a real estate agent expense tracker. Here are some of the advantages:

• Business and Personal Separation – Separating business and personal finances is crucial to report accurate tax return data. Without proper separation, you could break the liability barrier in your business.
• Accurate Expenses – Claiming accurate real estate tax deductions is important. Not only can you keep track of your income throughout the year, but you can also have detailed records in the event of an IRS inquiry.
• Insightful Real Estate Reports – Realtors accounting software is tailored to real estate agents, helping you monitor expenses, organize client data, and manage deals to run an efficient business.
• Transparency Into Taxes – Expense trackers, like Agent Xpense, have built-in real estate agent tax calculators, helping you project your upcoming tax bill.
• Record Retention – Keeps documentation organized and ready for any audits.

Expense trackers streamline your real estate business, allowing you to enter tax time fully prepared.

Summary

Are you taking all available real estate business deductions? Whether you are overwhelmed by tracking eligible expenses or are looking for a way to streamline your expense reporting, consider using an expense tracker designed for real estate agents. Check out Agent Xpense to learn more about the benefits.