Realtors and real estate agents have to file taxes like everyone else, but it can get a little more complicated than a simple return. You have to be on time and accurate, but to avoid overpaying on your taxes, you have to know the rules for credits and deductions.

The IRS views most realtors and real estate agents as self-employed workers, which comes with more complex documentation and forms you have to fill out.

Follow this guide to make your taxes a part of your ongoing business success and health as a realtor or real estate agent.

Realtors and Real Estate Agents as Self-Employed Individuals

One of the challenges for a realtor or real estate agent is determining your employment status. Most real estate agents are self-employed, but others may be employed by a brokerage or agency as an employee.

How can you tell? The federal government treats licensed realtors and real estate agents as employed if:

• Your taxes are automatically withheld from paychecks from an employer.
• You file a simple return like any other employee.

You may be considered self-employed if:

• The payment you receive is related to sales instead of hours worked.
• The services you provide are part of a written contract that states you won’t be treated as an employee for tax purposes.
• Your taxes are not automatically withheld from your paycheck.

In most cases, real estate agents and realtors run their business as a sole proprietorship and fall under self-employed taxpayers. Even as contractors, these realtors and real estate agents are considered operating a business, they don’t run it with someone else, and they don’t have a corporation, such as an S corp in California.

The PATH Act

The Protecting Americans from Tax Hikes (PATH) Act of 2015 was an Obama-era law that expanded or renewed tax credits for individuals, families, and businesses. Though it covers a wide range of tax-related matters, it primarily impacts people who may be eligible to receive certain tax credits. Real estate agents and realtors are among them.  

The PATH Act focused on extended or expanding eligibility for certain tax credits for business owners. Overall, a tax credit is more valuable than a tax deduction because it reduces the total taxes owed. These credits may be refundable or partially refunded, creating an opportunity for a lower-income taxpayer to owe little or no taxes.

The IRS also changed Section 179 deductions, which allows you to deduct work-related expenses like a vehicle purchased for work use. There are limits to how you can deduct expenses as a realtor or real estate agent, however.

Here are some common deductions that realtors may have:

Continuing Education

As a real estate agent or realtor, part of your job is staying up on market trends and learning new strategies and laws to support your business goals. These are considered business expenses and may be deductible. Consider all your education expenses, including continuing education courses, real estate training, and coaching.

This should be on Schedule C, Box 27a.

Marketing Assets

As an independent realtor or real estate agent working on commission, it’s up to you to hustle and bring in business. All of the marketing materials you use to attract homeowners or sellers may be allowable deductions. This includes your business cards, open house signs, mailers, flyers, billboards, and pamphlets.

Don’t forget your digital marketing expenses, either. Lead generation software, such as a customer relationship management (CRM) platform or email marketing platform, also fall under marketing expenses.

This should be on Schedule C, Box 8. Lead generation software is Schedule C, Box 18.

Legal Fees

If you have legal fees that you paid to set up your business or draft any contracts or documents, those are business expenses.

This should be on Schedule C, Box 17.

Commissions

If you pay commissions to employees or other agents, these costs are fully deductible business expenses on your tax return.

This should be on Schedule C, Box 10.

Transportation

Many realtors and real estate agents need a vehicle to get to showings and open houses. If you use your vehicle for work, your vehicle-related expenses like a new car purchase or lease, maintenance, mileage, and fuel may be deductible. Don’t forget additional travel-related expenses like parking or local tolls.

This should be Schedule C, Box 13 for car purchase and depreciation,  Box 9 for vehicle maintenance, and Box 15 for car insurance and registration.

Licensing

Real estate agents and realtors must be licensed in their state to facilitate property sales and purchases. This comes with expenses for licensure, applications, and more, so be sure to include those on your tax return. You may also have association dues or fees for Multiple Listing Service (MLS) that are also work expenses.

This should be on Schedule C, Box 27a.

Utilities

Any utilities you use for your business may be deductible. This includes your phone service, internet service, and electricity for your office. If you have a home office space, these deductions still apply at a percentage.

This should be on Schedule C, Box 27a for most write offs. Your power bill, water bill, and property insurance will be Form 8829. The internet services are Box 25.

Professional Services

If you work with a designer, photographer, editor, or other creative professional, you can write off those expenses as part of your business expenses.

This should be on Schedule C, Box 11.

Insurance

Real estate agents and realtors must carry business insurance, such as general liability and professional liability insurance. If you have your own policy that’s paid by you, not your brokerage, it may be deductible. You also have Errors and Omissions (E&O) insurance, which is deductible.

This should be on Schedule C, Box 15.

Home Office

If you have a home office that you use for work purposes, some of your home rental or mortgage interest, repairs, or depreciation may be deductible. It’s based on the square footage that you use as office space.

This should be on Form 8829.

Office Supplies

All of the supplies you use for your office, such as pens, binders, folders, printer ink, or a whiteboard, are deductible.

This should be on Schedule C, Box 18.

Work Travel

Travel may be part of your work as a real estate agent or realtor. If you attend conferences, travel to different properties, or take other work-related trips, you may be able to deduct your meals, airfare, lodging, and other expenses. Keep in mind that you can’t take a lavish trip and write it all off, but you don’t have to rely on only the cheapest options available, either. Keep accurate records of your travel expenses to justify your deduction.

This should be on Schedule C, Box 24a.

How to File Taxes as a Realtor

Once you have your deductions in order, you’re ready to file your taxes as a realtor or real estate agent.

Compile All Your Tax Records

You will need to reference your records while filing your taxes, so make sure you have them all on hand. This should include your receipts or copies, your business earnings, and your business expenses. If you have real estate accounting software, this process will be much easier.

Identify Your Employment Status

As mentioned, most real estate agents are self-employed taxpayers. It’s important to understand the difference, however, as there are different tax rules for self-employed vs. employed individuals.

Employees have taxes withheld by their employer before they receive their paychecks (net income). While there are many reasons why you must file taxes, some of it is to ensure that the employer has withheld and paid the correct amount for your taxes,

For self-employed individuals, this process is more complicated. Real estate agents and realtors are considered self-employed taxpayers or contractors, so they’re required to pay quarterly taxes and declare their earnings. The responsibility to pay the correct amount falls on you.

The 1099-MISC acts as a W-2 for self-employed realtors and real estate agents. The broker or agency may provide this form each year to indicate the income you brought in.

Form 1040 is the annual tax return form, which you may use to report individual income tax. You’ll also need the Schedule C to calculate your profit and deductible expenses and the Schedule SE to calculate your taxes. Your quarterly taxes are estimated based on the Form 1040-ES.

This is all for federal taxes, but you may be responsible for state taxes as well. Depending on your state, you may need to fill out more forms to calculate your state income tax. Most states require income tax, but Alaska, South Dakota, Wyoming, Texas, Washington, and Florida do not.

Finish Filing Your Taxes

You can file your taxes on your own if you prefer, but tax software or accountants can make it much easier. Tax software is the more cost-effective option and ensures that you’re filing your taxes correctly. An accountant does most of the work for you, but it can be costly.

Make Your Quarterly Tax Payments

You have to estimate and pay your quarterly tax payments as a self-employed individual. There are specific due dates for these payments, which are:

January 15: This is the tax payment deadline for the income you earned between September 1 and December 31 of the previous year.

April 15: This is the tax payment deadline for the income you earned between January 1 and March 31.

June 15: This is the tax payment deadline for the income you earned between April 1 and May 31.

September 15: This is the tax payment deadline for the income you earned between June 1 and August 31.

You’re responsible for your income tax, which is at a rate comparable to employed individuals, but you also have to pay Social Security and Medicare as self-employment taxes at a rate of 15.3%. For employed individuals, these are split between the taxpayer and the employer.

Helpful Tips for a Smooth Tax Season

Want to make tax season as smooth as possible? Here are some tips:

Keep Your Records Organized

As a self-employed real estate agent or independent contractor, keeping your records handy and organized is key to your tax season. Coming up on a filing deadline is stressful enough without worrying about compiling paperwork.

Throughout the year, file away all your tax forms in a location that’s secure and easy to access. Don’t keep documents scattered at the office, at home, in a cloud drive, and on your phone. When you have expenses, take pictures of the receipts and save them to a file on your phone, ideally one that’s synced to a cloud drive that’s available on all your devices.

If you keep copies along the way, you’ll be much less likely to forget any expenses you want to deduct. You should also retain records of your old tax forms in case you need a quick reference.

Don’t Rush

When you’re rushing, you’re much more likely to make mistakes that can lead to fines, penalties, and legal issues with your taxes. Some of the most common mistakes include:

• A missing name
• An illegible name or address
• Incorrect income or expense calculations
• Filling out a payment check incorrectly
• Missing a signature or return date
• Forgetting a postage stamp
• Forgetting important forms
• Using the wrong taxpayer ID number
• Underpayment, which can result in tax penalties
• Underreporting, which can result in fines and penalties

Include Your Deductions

Real estate agents and realtors have plenty of business expenses that may be deductible to reduce liability, but make sure you track all your expenses beyond the big-ticket items. Small expenses, such as office supplies or gas for your car, can really add up.

Don’t Forget Tax Credits

Part of the PATH Act was expanding eligibility for tax credits. Consider the possible tax credits that you may be eligible for, including the Child Tax Credit, the Education Credit, and the Saver’s Credit.

Get Ready for Tax Season

Filing your taxes as a self-employed realtor may seem overwhelming, but not when you go into it prepared. Focus on organizing your documents and preparing for your taxes all year long with tools like predictive accounting software to help your tax season go smoothly. 

Author Bio: 

Name: Shahar Plinner

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.