Realtors are often self-employed individuals, which comes with a lot of responsibility, including taxes. Filing your taxes can be difficult and stressful, especially if you’re not sure how to handle your deductions and the tax rules that apply to you.

The best way to make real estate accounting stress free is by preparing for taxes all year long. Here’s how.

Understanding the PATH Act

The Protecting Americans from Tax Hikes (PATH) Act was passed by the Obama Administration in 2015, providing real estate agents and realtors with tax relief for business-related purchases.

With the PATH Act, the IRS changed Section 179 deductions, allowing you to deduct many of your work-related expenses. This may include deductions like your car if you use it for work purchases, such as traveling to showings or open houses.

Here are some common deductions for realtors and real estate agents:

Education

Realtors and real estate agents have to keep up with their education to understand the changes in laws and regulations that apply to real estate. In some cases, this education is deductible, such as real estate coaching, training classes, or other real estate courses.

Marketing

Any marketing assets you use for your business, such as print ads, billboards, or digital campaigns to attract buyers and sellers, may be deductible. Consider all your marketing materials, including sale flyers, business cards, and social ads.

Travel

If you rely on your vehicle for your work, such as driving to locations to put up for sale signs or attending real estate showings, the related expenses are deductible. This may include maintenance, mileage, gas, insurance, purchase or lease costs, and licenses.

Licensing

Your real estate license and renewal are work expenses and deductible. You may also be able to deduct association dues.

Utilities

Your utilities are deductible, whether you have a home office or work in an office building, if they’re required to do your job. These may include your electric bills, phone bill, and internet service.

Insurance

Your business insurance, such as your general liability insurance, may be deductible if you pay for it yourself. It’s not deductible if your brokerage covers it for you.

Home Office

Like utilities, home office expenses can be deductible. How much you’re able to write off depends on the square footage and how much you use it for work.

How to File Taxes as a Realtor

Now that you’re prepared for your deductions, here’s how to file your taxes as a realtor:

Compile Records

Before you file your taxes, gather all the documents you have to ensure you have the information handy as you’re filing. This includes:

• Business expenses
• Business earnings
• Business receipts
• Documents for applicable deductions

Consider Your Employment Status

Realtors and real estate agents are often self-employed, but taxes are different if you’re self-employed vs. employed.

When you have an employer, the taxes are automatically withheld by your employer before you get paid. Part of the reason that you have to file taxes as an employee is to verify that your employer has paid the correct amount.

When you’re self-employed or an independent contractor, the taxes are not taken out automatically. You have to pay taxes quarterly and declare your income, then pay the correct amount for your tax bill.

Employed individuals get a W-2, but when you’re self-employed, you get a 1099-MISC. Your broker may provide this form to show your earnings.

You will use the Form 1060 for your annual individual income tax, the Schedule SE for your tax calculations, and the Schedule C to calculate profit. The Form 1060-ES helps you estimate and pay your quarterly taxes.

In addition to federal taxes, you will have state income tax forms. These requirements can vary by state. A few states don’t require income tax, including South Dakota, Nevada, Alaska, Wyoming, Texas, Washington, and Florida.

File Your Taxes

You can file your taxes using a tax software solution or by outsourcing the work to an accountant, which can be expensive. Using tax software is affordable and streamlines the process to make sure you’re filing your taxes correctly without the need for a professional. For example, you can find answers to questions like, “do LLCs get a 1099?”

Make Quarterly Tax Payments

You are responsible for your tax payments every quarter. The dates are as follows:

• January 15 is the deadline for your tax payments from September 1 to December 31 of the previous year.
• April 15 is the deadline for your tax payments from January 1 to March 31.  
• June 15 is the deadline for your tax payments from April 1 to May 31.  
• September 15 is the deadline for the tax payment from June 1 to August 31.

These payments include your income tax and your Social Security and Medicare payments. Employed individuals have these taxes paid by the employer, but they’re your responsibility as a self-employed individual.

Helpful Tips for Realtor Taxes

Here are some more tips to make tax time less stressful:

Stay Organized

Staying organized is your secret weapon to avoid stress with your tax filing. Keep all your tax forms in an easy to locate area throughout the year and take pictures of your receipts as you incur expenses. You should also keep copies of your old tax forms in case you need information for your current taxes.

Take Your Time

When you’re stressed and rushing, you’re more likely to make mistakes that can have potentially serious consequences. Some of the most common mistakes include missing or illegible names, miscalculating your income or expenses, forgetting the postage stamp, missing a signature, or filling out your payment check incorrectly. Underpayment and underreporting, both of which can carry penalties, are also issues you may encounter.

Don’t Forget Your Tax Credits

You may have eligible tax credits for your personal and financial situation, such as dependent care, the child tax credit, education credits, and the earned income tax credit. Pay attention to these tax credits to avoid overpaying on your taxes.

Organize Your Realtor Taxes

Tax time can be stressful for anyone, but it’s even more challenging when you’re a realtor. When you prepare for taxes all year long and rely on an efficient process like a predictive account software, you can make tax time a breeze.

Author Bio: 

Shahar is a tax and accounting expert with over 20 years of experience in the field. He is an entrepreneur and known as The Tax Guru on the west coast. Shahar moved to Seattle from Israel and founded, scaled, and sold a leading tax and accounting firm in the Seattle Metro area. Over the years, he served thousands of business owners and perfected the playbook for self-employed tax strategy. That’s why he founded Formations, to make sure the self-employed never overpay on taxes again.