Things to Know About Tax Preparation for Realtors
Tax preparation for realtors involves unique considerations due to the independent-contractor nature of most real estate professionals. Understanding these factors helps reduce tax liability, avoid surprises, and keep financial records organized throughout the year. S|CPA Group – A Member of the S|CPA Network provides tax preparation for realtors in Dallas, Fort Worth, Austin, San Antonio, Plano and surrounding areas.
- First, most realtors operate as 1099 independent contractors, meaning taxes are not withheld from commission checks. As a result, realtors are responsible for paying quarterly estimated taxes to cover federal income tax, state income tax (where applicable), and self-employment tax. Failing to make quarterly payments can result in penalties, so planning ahead is essential.
- Record-keeping is another major factor. Realtors should maintain detailed logs of business expenses, including vehicle mileage, home-office use, marketing costs, professional fees, client meals, continuing education, and technology expenses. Good documentation not only simplifies tax filing but also ensures no deductible expenses are overlooked. Using bookkeeping software or a dedicated business account can make organization easier.
- The vehicle deduction is often one of the largest write-offs for realtors. Agents can choose between the standard mileage rate or the actual-expense method. The optimal choice depends on driving habits and vehicle costs, so maintaining mileage logs is critical.
- Realtors can also benefit from home office deductions, as long as the space is used exclusively and regularly for business. This deduction may include a portion of rent or mortgage interest, utilities, property taxes, and home maintenance costs.
- Those who form an LLC or elect S-Corporation status may access additional tax advantages, such as reducing self-employment tax or enabling strategic payroll planning. However, these structures come with added paperwork and potential legal considerations, so professional guidance is recommended.
- Finally, partnering with a CPA or tax professional who specializes in real estate can help interpret IRS rules, maximize deductions, and avoid costly mistakes. With proper planning, realtors can successfully manage taxes and keep more of their hard-earned commission income.
Want to discuss this further? We’re available by phone or email.