Tax Tips for Realtors: How to Manage Finances and Reduce Tax Stress
Managing taxes as a real estate agent can be overwhelming, but having a solid strategy can reduce stress and save money. We dive into essential tax tips for realtors with CPA Karen, who specializes in real estate tax planning. From understanding tax structures to maximizing deductions, this episode covers everything agents need to know to manage their business finances efficiently.
Building a Tax-Smart Business
New agents often struggle with taxes because they are used to traditional jobs where taxes are automatically deducted. A crucial first step is setting up a separate business bank account and credit card to track expenses. This simple habit makes tax filing easier and ensures you capture all possible deductions.
Understanding your tax structure is also key. Many agents start as sole proprietors but may benefit from forming an S Corporation once their net income exceeds $50,000. This can reduce self-employment taxes and provide additional tax-saving opportunities.
S Corporations and Payroll Requirements
When transitioning to an S Corp, realtors must pay themselves a reasonable salary. The IRS requires S Corp owners to take part of their income as payroll, subject to employment taxes, while the rest can be taken as distributions, which are not subject to self-employment tax. Hiring a CPA ensures compliance and helps determine an appropriate salary.
Essential Tax Deductions for Realtors
Realtors have many deductible business expenses. Some of the most valuable deductions include:
- Brokerage fees and commission splits
- Marketing and advertising costs
- Home office expenses
- Vehicle expenses (mileage or actual costs)
- Client gifts (subject to IRS limits)
- Professional development and training
- Business travel and meals (with clients or prospects)
- Technology and software subscriptions
Planning for Quarterly Tax Payments
Unlike salaried employees, realtors must pay quarterly estimated taxes to avoid penalties. A general rule is to set aside 25-30% of net income for taxes. Working with a tax professional can ensure accurate payments and prevent unexpected tax bills.
Should Realtors Lease or Buy a Car?
Many agents wonder whether leasing or buying a car offers better tax benefits. Both options have advantages, but the best choice depends on business usage and tax planning strategy. The IRS allows deductions for business mileage or actual vehicle expenses, so tracking mileage is essential for maximizing this deduction.
How Tax Laws Affect Realtors
Tax laws change frequently, so staying informed is crucial. While proposed changes under a new administration may impact tax brackets and deductions, most laws take time to go into effect. Working with a knowledgeable CPA ensures compliance and allows agents to adjust their strategies accordingly.
Final Thoughts
Handling taxes doesn’t have to be stressful. By implementing these tax tips for realtors, agents can stay organized, reduce tax liabilities, and focus on growing their business. The key is proactive planning—set up financial systems early, track expenses diligently, and work with professionals to optimize tax savings.
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On this episode we interview Karen Bahn, a seasoned tax accountant and advisor. Karen believes that access to strategic tax planning accelerates growth in a business, which we are all for! She is on a mission to bring her knowledge and expertise to the successful modern real estate entrepreneur. She also knows a thing or two about that #realtorlife as wife to a successful real estate agent. Karen is a mom to 2 kiddos and 2 English bulldogs and we know that you will love soaking up all of her knowledge! Find Karen on IG @karen.bahn or karen@bahncpa.com.
