December 31st is a time to celebrate the end of a successful year in your real estate business.But, it’s also the last day for most real estate agents’ tax year. Now is the time to estimate your 2017 income taxes to see if you need additional deductions to save money. Before getting into tax deductions, never lie in your tax returns as they carry severe penalties.
Here are 10 last-minute tax deductions especially for real estate agents in 2017:
1. Create an SEP (Simplified Employee Pension)
Keller Williams Realty recommends its members create an SEP retirement plan before the tax year ends as an excellent tax savings strategy for self-employed real estate agents.
According to Investopedia, an SEP is a self-employed IRA where the maximum tax deduction for 2017 into an SEP is 25% of the self-employed annual compensation up to $54,000. This means if you contribute $10,000, you will save $2,500 in taxes. If you contribute the full $54,000, your tax savings will be $13,500.
In addition, you could be eligible for a tax credit up to $500 annually for the first three years your SEP account is open.
Before creating your SEP, consult with a tax attorney or a CPA to learn everything you need to know about this deduction.
2. Buy or Lease a New Car
Appearances really matter in our industry. Buying or leasing a new car before the end of the year allows you to take advantage of the discounts car dealers offer on 2017 models after the 2018 ones arrive, according to Autotrader.
Surprisingly, while you can only deduct the depreciation of a newly purchased car, you can deduct the entire monthly payment when you lease a car if it is used solely for business purposes, according to TurboTax. Otherwise, the percentage of business use is deducted from the lease payments if partially used for personal purposes.
However, the upfront down payment on leasing your car is deducted over the life of the lease, according to IRS Publication 463.
3. Client Christmas Gifts
Send out up to $25 in Christmas gifts to all your clients and prospects so you can deduct them from your taxes. According to the American Institute of Certified Public Accounts, the IRS allows your business to deduct up to $25 for gifts to business clients and prospects per recipient each year. There is no limit on how many business gifts you make. However, you must keep records of the gift, amount, and business relationship.
4. Home Office Deductions
According to Forbes, a dedicated workspace in your home used only for your real estate business qualifies for a home office deduction. Surprisingly, of the 26 million Americans having a home office, only 3.4 million taxpayers claim the home office deduction.
Forbes also claims that home office deductions no longer trigger a tax audit from the IRS. This claim is supported by J.K. Lasser’s Your Income Tax.
The IRS recently published an excellent explanation of the Home Office Deduction. Homeowners and renters can use this deduction.
In 2013, the IRS published a simple option for computing the home office deduction. This simple method reduced the burdensome record keeping under the regular method by allowing a prescribed rate based on the square footage of the office in relation to the home expenses such as rent, mortgage, gas, electricity, etc.
According to NAR, even if your broker provides you with an office, your home office expenses can still be deducted.
5. Buy Office Supplies and Equipment
Aside from your home office deduction, you can purchase extra office supplies like pens, paper, stationary, etc. Landline telephones for business can also be deducted.
Your smart phone (or cellular) costs can be deducted based on the percentage of business use.
NAR also claims that your office equipment such as furniture, copiers, computers, fax machines, etc. can be “expensed in full or depreciated over a number of years”.
6. Buy Real Estate Software and Apps
Make a Christmas present to yourself by upgrading all of your real estate software and apps and deduct them. You need to keep pace with your competition by investing in better open house software, the latest in transaction management software, upgrade your CMA software, invest in new landing pages, website design and features, upgrade your blog’s interaction tracking software, etc.
Subscription services like Customer Relationship Management (CRM) software are also fully deductible.
7. Increase Advertising and Marketing
If you need additional deductions, put more money into your advertising and marketing efforts as they are tax deductible. Top producers spend a lot of money in this area because it pays off in the end.
Buy postcards, virtual staging apps, and try out different advertising vehicles. Besides being tax deductible, they can lead to increased commissions.
8. Book Conferences and Conventions
If you still need more tax deductions, arrange your travel to attend industry conferences and conventions like Inman Connect and the NAR Conference. Your travel and lodging expenses are fully deductible. Keep records of your meals while away on business to qualify for the 50% deductions.
Treat yourself by attending business events in exotic places or warmer climates, which are tax deductible. This includes industry development courses, trade shows, and real estate trends coaching.
Pay for all of these business events before December 31st to deduct the expenses in your 2017 tax return. Or, wait until 2018 starts if you want the deductions for the 2018 tax year.
9. Uber and Taxi Fares
If you live in a congested urban area, consider using taxis and Uber to attend business-related meetings and events. This will save you from paying gas and increased maintenance on your car while deducting all of these fares. It also relieves you from the stress of driving in congested traffic and finding parking spaces. You can relax and make phone calls, answer emails, and chat with clients while you commute.
10. Hire a Virtual Assistant
You probably spend too much time doing research, clerical chores, prospecting for seller and buyer leads, and setting up listing appointments.
What if you could hire a virtual assistant to do all of that “grunt work” for you at a very low cost? Wouldn’t you rather have free time to do things that are going to make you money, like going to listing appointments?
Hiring an overseas virtual assistant won’t cost you nearly as much as hiring someone in the U.S. The IRS, U.S. Labor Dept., and U.S. Immigration all say it is legal for U.S. employers to hire people living outside the U.S. as virtual assistants.
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