Realtor Tax Tools 2023

Great news for Texas Real Estate License holders. Texas Real Estate agents can now be compensated through an S-Corp or an LLC. Effective January 2024, Real Estate license holders in Texas now have the option to register LLCs and S-Corporations (S-Corps) with TREC for the purpose of receiving compensation, for entities meeting certain requirements. As a result of Senate Bill 1577, passed by the 88th Texas Legislature, which amends The Real Estate License Act (TRELA) to add it as an option in addition to the business entity real estate broker license. This can result in favorable Tax treatment in addition to other benefits for Real Estate license holders.

The Protecting Americans from Tax Hikes (PATH) Act provides real estate agents and brokers some additional relief when it comes to business-related purchases by making changes to the IRS Section 179 deduction. Enacted in 2015, the PATH Act allows you to immediately deduct all or a greater portion of your purchase, which means bigger savings at tax time.

For example, in tax year 2023 you could expense, or write off, up to $28,900 of the price of a new car for the tax year in which you bought it. There are certain limits to the type of vehicle that qualifies for this tax break, however, as well as limits to the amount of the allowable deduction. Since most real estate agents and brokers receive income in the form of commissions from sales transactions, you are generally not considered an employee under federal tax guidelines, but rather a self-employed sole proprietor, even if you're an agent or broker working for a real estate brokerage firm. This self-employed status allows you to deduct many of the expenses you incur in your real estate sales or property management activities. Careful record keeping and knowing your eligible write-offs are key to getting all of the tax deductions you're entitled to. Here are some of the most common real estate agent and broker deductions. Expenses must be Ordinary, necessary, reasonable and related to your Real Estate business.

Marketing Expenses-

Expenses such as sales and open house signs and flyers, your website development and maintenance, and business cards and mailers. Digital and online advertising costs are quickly becoming the greatest area of spending. Advertising expenses such as marketing materials, staging, photography, and signage can all be deductible through the Internal Revenue Service’s advertising expense deduction. This is one of the best deductions because of its broad requirements! 

Business & E&O Insurance and Fees-

Annual fees are a common cost of doing business and are deductible. In real estate, that means your state license renewal, professional memberships, and MLS dues. An important caveat with regard to professional memberships: the portion of your membership dues attributable to lobbying and political advocacy is not deductible. General business insurance and errors and omissions (E&O) insurance are both fully deductible business expenses. Additionally, you can deduct real estate taxes necessary for your business, and self-employed individuals receive an income tax deduction for half of self-employment taxes.

Commissions Paid-

Did you know that commissions you pay to other agents or employees that work with or under you are generally fully deductible business expenses? This is a deduction you should not overlook since commissions can add up quickly!  

Productivity Software costs-

 Any software needed to run your business is fully deductible – including lead-generation subscription services such as customer relationship management (CRM) software. Products that help you automatically track your expenses and mileage may be fully deducted as well. 

Desk Fees-

Whether you are hanging your license under a national franchise or with an independent broker, your desk fees are deductible. (Remember though, if you’re taking the deduction for brokerage desk fees, you will not be able to claim the home office deduction mentioned above.) 

Conferences and Conventions-

Similarly to education and training, if you’re attending a conference or convention for business purposes—whether for education, networking, new business opportunities or some other business-related reason, you can deduct the cost of these conferences. 

As long as you’re not reimbursed for any of these expenses by an employer, you can deduct things like: 

• The cost of the convention 

• • Airfare/transportation expenses to get to/from the conference 

  • Mileage, if you drove to the conference 

  • Food while at the conference (see meals deduction) 

  • Lodging, if you were required to stay the night away from home 

  • Business cards or other personal marketing materials you brought to the conference

Office Supplies and Equipment-

Whether you’re taking desk fees or home-office deductions, you can still claim other office-related expenses including stationery, photocopies, and any other consumables needed to run your business. Furniture, fax machines, copiers, computers, or your telephone (and associated bill) can also be expensed in full or depreciated over a number of years.

Phone Bill & Internet-

If you have a dedicated landline telephone for business, you can fully deduct this expense. If you use your cell phone only, you are eligible to deduct the business percentage of that expense. You can also deduct the Internet costs for the business use percentage of the expense.

Client gifts-

If you sent any client gifts throughout the year—gift baskets, tickets to events, or other gifts—these are partially deductible, as long as you follow the IRS regulations: You can deduct up to $25 of the cost of business gifts that you give to each person throughout the year. If you and a spouse give gifts to the same person, you can only deduct the cost of one gift. Incidental costs (packaging, shipping, wrapping, etc.) are not included in the $25 limit. Gifts that cost $4 or less that have your business name engraved on them are not deductible. You also must keep records proving the business purpose of the gift as well as the amount spent. All of the amazing client gifts that you gave out over the course of the year are deductible as long as you follow the IRS’s stipulations:

You deduct no more than $25 of the cost of business gifts you give directly or indirectly to each person during the tax year.  

If you and your spouse both give gifts to the same person, you are treated as one tax payer.

Incidental costs (engraving, packaging, shipping) are not included in the $25 limit if they don’t add substantial value to the gift.

Do not consider gifts $4.00 or less that you have your business name permanently engraved on the item, which you distribute on a regular basis.

You have records proving the business purpose of the gift as well as details of the amount spent.

Real estate coaching, training, and education costs- 

Given rapid industry change, continuing education is a great way to stay competitive. Taking training courses to further your professional education and maximize your potential? You may be able to deduct your registration fees, related materials, and certain travel costs. There are several requirements:

• The training and education cannot qualify you for a different trade or business.

• The training cannot be for the purpose of meeting minimum educational requirements.

• The training course(s) must maintain or improve the skill related to your field of real estate.

Transportation expenses-

Include automobile maintenance and repairs, gas, mileage, auto insurance, parking and new car purchase or lease costs. Between showings, listing presentations, and more, miles can rack up fast. With the standard auto deduction, every mile you drive for your business can be deducted from your taxes. If you drive 10,000 miles or more annually for your real estate business, it’s likely you’ll get the greatest tax benefit by taking the standard mileage deduction. For the 2023 tax year, the standard mileage rate is $65.5c per mile. However, if you’re a lower mileage driver or have especially high car payments, the actual cost method may yield a higher deduction. Travel airfare, lodging, and meals for real estate education and business purposes

Home Office Expenses and Deduction- 

Whether you rent or own your home. If you conduct business out of your home (or parts of it), you can take advantage of the home office deduction – unless you are deducting desk fees already. Like the vehicle deduction, the home office deduction offers two options: the regular method or a simplified method. Most self-employed people find that the simplified method maximizes their deduction. However, before pursuing this option, know that your home office has to be used regularly and exclusively as the principal place of business. This means your bed, porch swing, and kitchen table do not count as deductible expenses.

Meals-

There are two situations in which you can deduct meals as a business expense: when you are traveling on business, and when you are dining with clients or with other professionals for the purpose of conducting business or generating referral business.

Health Insurance-

Health insurance premiums paid for you and your family may be deductible, as long as you and your spouse are not eligible for an employer-sponsored health plan. This includes medical insurance, dental, and long-term coverage. 

Legal and Professional Services-

Professional services for your real estate business, like attorneys, CPAs, bookkeepers, consultants, and third-party marketing and advertising vendors or individuals, are 100% deductible. You may also deduct legal expenses for unreimbursed costs that you paid on your client’s behalf and are related to their property, like title searches or attorney closing fees. These deductions go in Schedule C, Line 17.

Sometimes, attorneys help you with personal and business matters. To ensure you comply with IRS regulations, have your attorney bill you separately for business and personal issues. You can only deduct business-related legal costs.

Retirement Plan Contributions-

Since agents are independent contractors, they usually purchase their retirement plans or contribute to a SEP IRA. If agents contribute to a retirement plan each year, they should consider maxing out the contribution to get the maximum tax savings. A few plans agents can choose from:

• Self-employment Pension (SEP) IRA: Agents can contribute the lesser of 25% of Schedule C income or $66,000 in 2023. Read about Keogh plans and other SEP IRA plans.

• Traditional IRAs: The maximum you can contribute to your IRA is $6,500 if you’re younger than 50, or you can add an extra $1,000 per year after 50 to max out the annual contribution at $7,500.

• Solo 401(k): Must be a business with no employees. The maximum contribution limit is $66,000 in 2023, and you can add $7,500 annually if you are 50 or older. Look at the 6 Best Solo 401(k) Providers for 2023 to choose the best option.

Keep in mind that to qualify as deductible, real estate business expenses must be ordinary, necessary, reasonable and directly related to your Real Estate business. IRS Publications 463 and 535 can help you determine whether a specific expense is tax deductible. 

Pass Thru Entity (S Corporation or LLC) Option in Texas-

Effective January 2024, Real Estate license holders in Texas now have the option to register LLCs and S-Corporations (S-Corps) with TREC for the sole purpose of receiving compensation, as long as those entities meet certain requirements. As a result of Senate Bill 1577, passed by the 88th Texas Legislature, which amends The Real Estate License Act (TRELA) to add it as an option in addition to the business entity real estate broker license. This can result in favorable Tax treatment in addition to other benefits. Texas Real Estate agents can now be compensated through an S-Corp or an LLC. 

Schedule a free consultation regarding your 2023 Tax Return, or setting up an LLC or S Corporation today. Our way of saying thank you for all you do. 

Z Tax & Accounting

600 E John Carpenter Freeway, Suite 268

Irving, TX 75062

Phone: (214)699-4790