Tax Cheat Sheet for Real Estate Agents

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No one likes filing their annual tax return. Taxes are necessary to fund education, infrastructure, national security, and social programs, but the process of calculating your taxes due can be overwhelming.

This is especially true for self-employed professionals like real estate agents. Because you earn commission instead of wages, your income tax situation is quite different from hourly and salaried employees.

To make your life a little easier this tax season, we’ve put together a handy tax cheat sheet for real estate agents.

Preparing your annual tax returns takes a little time, but you can follow these seven steps to make the process as smooth as possible.

While you certainly have the option to do your taxes on your own (particularly with the help of tax-prep software like TurboTax, TaxAct, or H&R Block Premium), most agents realize the benefits of  using a professional.

Real estate agent income tax filings can get complicated quickly due to the self-employment status and the many deductions available to agents. Rather than doing your own taxes or using a service like H&R Block, consider hiring a local CPA (Certified Public Accountant), particularly if you can find someone who specializes in real estate agent filings.

A good CPA will cost more than tax software or H&R Block, but he or she is also likely to save you more money in taxes by finding deductions and credits that you might otherwise miss. A CPA can also advise you on the tax liabilities of future ventures like estate planning or creating an LLC for your business.

To file your tax return, your tax preparer will need all your tax statements receipts and expenses. Some of the statements relate to income and some to expenses. Here’s a list of the most common income and expense tax statements to watch for:

• Income Statements:
  • Form 1099-MISC: miscellaneous income (As a real estate agent, you will get a 1099-MISC form from your broker outlining your commission earnings for the year.)
  • Form 1099-DIV: dividends on investments
  • Form 1099-INT: interest on investments

• Expense Statements:
  • Form 1098: mortgage loan information
  • Form 1098-E: education loan information

The IRS requires you to report all income earned, even if there is no income tax form to document the income. If you own rental properties, for example, you’ll need to report the rental income even though you don’t get an income statement for these funds. If you were ever to be audited, the IRS would see this income flowing into your bank account(s), so it’s important to report these numbers upfront.

Note income from additional sources like:

• Rental properties
• Side hustles

Tax write-offs (also called tax deductions) are expenses you can use to reduce the amount of income you are taxed on.

You can deduct all your business expenses as long as they are:

1. ordinary and necessary,
2. directly related to your real estate business, and
3. A reasonable amount.

Real Estate License Expenses

• Licensure costs (including your state license fees, exam fees, fingerprint fees, etc.)
• Association dues (such as MLS, NAR, Chamber of Commerce, etc.)
• Brokerage and franchise fees

Subscriptions

• Your Customer Relationship Manager (CRM)
• Accounting software
• Cloud storage
• Industry news publications (like Inman or your local news source)
• Additional software subscriptions (Adobe, MS Office, Canva Pro, DocuSign, etc.)

Training and Education

• Pre-license real estate courses
• Continuing education courses
• Real estate-specific books
• Training sessions and classes
• Seminars, workshops, and conferences
• Coaching

Marketing

• Business cards
• Flyers, brochures, and door hangers
• Signage
• Website launch and on-going maintenance
• Postcards and other direct mailers
• Social media ads
• Other advertising (online ads, print ads, billboards, etc.)

Equipment and Supplies Expenses

• Cell phone and phone service (the percentage used for business purposes only)
• Computer and accessories (keyboard, mouse, webcam, headphones, etc)
• Tablets
• Lockboxes
• Printer, scanner, and copier
• Staging pieces
• Office furniture and accessories
• Stationary and postage
• Ink and toner
• All miscellaneous office supplies (sticky notes, pens, notepads, binders, etc.)

Travel and Food Public transportation fees Airfare Lodging Business-related meals (but only 50% can be written off) Professional Service Expenses Accounting fees Photography fees Staging fees Appraisal fees Legal fees Business insurance fees Private health insurance fees Last year’s tax prep fee Virtual assistant fees Transaction coordinator fees Business banking fees * Commissions paid to other professionals

Workplace office expenses

• Rent
• Utilities
• Insurance
• Maintenance
• Phone and Internet

Home office expenses

• EITHER the IRS-approved per-square-foot deduction
• OR itemized deductions for mortgage interest and property taxes (if owned), rent (if rented), utilities, repairs and maintenance, home security

Transportation

• EITHER the IRS-approved per-mile deduction plus registration fees, taxes, auto loan interest, car washes, tolls, and parking
• OR itemized expenses including:
• Lease costs or auto loan interest
• Maintenance
• Gas and/or electricity
• Tires and other replacement parts
• Title, license, and registration
• Car washes
• Tolls and parking

Miscellaneous

• After-tax retirement plan contributions (like traditional IRAs or a solo 401k)
• Refreshments for clients (water, Keurig, coffee, snacks, etc)
• Rental property losses (for those who own income properties)
• Closing gifts (only up to $25 per gift, and no more than one gift per recipient in a given year)
• Referral gifts (only up to $25 per gift, and no more than one gift per recipient in a given year)

Unlike tax deductions, which are subtracted from your gross income to lower the amount of your taxable income, tax credits are subtracted directly from your calculated taxes due.

Each credit comes with specific eligibility rules. Many require you to make less than a certain amount to qualify for the credit. Make sure you, or your preparer, understand the current rules and limits for each tax credit.

Common tax credits real estate agents should check for include:

• American Opportunity Credit: for students in the first four years of college (or their parents)
• Lifetime Learning Credit: for students pursuing higher education at an eligible institution
• Child Tax Credit: for parents of children under 17 years old
• Child And Dependent Care Tax Credit: for parents who incur daycare costs for their dependents
• Adoption Tax Credit: for parents who adopt a child
• Earned Income Tax Credit: for families with low to moderate-income
• Retirement Savings Contribution Credit: for savers who invest in qualified retirement plans

Your tax preparer can use the documents and information you’ve collected so far to complete your federal income tax return. Submit it, along with any amount of taxes owed, by April 15th to avoid late fees and penalties.

In addition to the federal income tax return filing, 41 of the 50 states tax require state income tax return filing.

There are currently seven states that don’t tax income. If you live in any of these states, you will not need to file a state income tax return:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

And there are currently two states that don’t tax wages but do tax investment income. If you live in either of these states, you’ll only need to file a state return if you have investment income to report:

• New Hampshire
• Tennessee

Make sure you complete and submit any necessary state tax returns, along with any amount of taxes owed, by April 15th as well.

Here’s a quick cheat sheet for the actual filing:

• Print your completed Form 1040 (the annual income tax return form) or choose to file the form electronically.
• Sign, date, and submit the form to the IRS by April 15th. You can file Form 4868 to get an extension, but this can result in fees and penalties if you have taxes due.
• Pay your taxes due by April 15th or quarterly.
• Submit your state return and pay state taxes (if applicable).

Many real estate agents are surprised to learn that, as self-employed professionals, they are responsible for making tax payments quarterly. You can incur fines and penalties if you wait until your annual tax filing to pay your taxes for the entire year.

IRS Form 1040-ES is a 12-page booklet that helps you estimate your quarterly taxes. Your tax preparer can complete this for you each year. Then all you’ll need to do is pay the estimated amount each quarter.

Add a reminder to your calendar to pay quarterly taxes before the deadlines:

• April 15
• June 15
• September 15
• January 15 of the following year

Make tax season a little easier by printing this tax cheat sheet for real estate agents. You can check off each item as you review your finances from the past year. Then repeat next year! Every year will get easier as you get used to the process.