Are you ready for the new year? In this article, we break down everything you need to know about taxes for real estate agents going into 2020.
January 15, 2020 – that’s when your final 2019 quarterly tax payment is due. Unless, that is, you file your return by January 31.
In that case, you don’t need to make the January 15 payment “as long as you pay the entire balance due with your return” on January 31, according to Rocky Mingle, Kiplinger.com’s tax editor.
Hopefully you have lots of juicy Q4 business write-offs to help boost some already very cool benefits of the Tax Cuts and Jobs Act (TCJA).
Although people like to complain that most of the bonuses in the act went to the super-wealthy, many real estate agents and others who own small, pass-through businesses aren’t treated shabbily either. Most of these changes were introduced in time for last year’s taxes, but let’s do a recap on taxes for real estate agents.
Or, scroll down to the bottom to find a couple of overlooked ways to save on your taxes.
Be sure to download our real estate tax guide – it’s 100% free!
The TCJA’s Provision 11011, Section 199A is one to pay special attention to. It allows independent contractors, like you, to take 20 percent off of “net qualified business income,” right there where it’s most useful, line 9 of Form 1040. (As of this writing, Form 1040 is still undergoing revisions).
For individuals, the deduction is available until taxable income reaches $157,500, then it “phases out over the next $50,000, until you reach $207,000,” according to Robert Freedman at Magazine.Realtor.
The income limit and phase-out are higher for couples who file jointly. Speak with your tax professional to learn more.
According to the IRS, “The deduction is available, regardless of whether an individual itemizes their deductions on Schedule A or takes the standard deduction.”
Last year we could use a worksheet supplied by the IRS in the form’s instructions. Your 2019 taxes, however, will need to be accompanied by a Form 8995 (like our tax returns aren’t thick enough as it is, right?).
Learn more about this deduction by speaking with your tax professional. You’ll also find additional information online at IRS.gov, MadFientist.com and HousingWire.com.
If you entertain clients a lot in your real estate business, you can no longer deduct any expenses “related to activities generally considered entertainment, amusement or recreation,” according to the IRS. We know, that’s a big blow when it comes to taxes for real estate agents.
Food and beverages, on the other hand, are deductible up to 50 percent, but there are strings attached.
The food and beverages consumed during entertainment, amusement or recreational events must be purchased separately from the event.
Take a client to a baseball game, for instance, and 50 percent of what you pay for those hot dogs is deductible.
Then, the meal or drinks (or both) can’t be considered “lavish or extravagant under the circumstances” and you or someone who works for you must be present, according to IRS Notice 2018-76.
One thing many real estate professionals forget when they work from home is that they can still deduct for mileage driven on the job.
In 2018, you could deduct 54.5 cents a mile for any miles driven for business. For 2019, you get to deduct a bit more — 58 cents per mile.
You’ll need to keep records, however, if you want to take the deduction. Keep track of every last mile you drive for business (there are apps for that), how much you spend on maintaining your vehicle (new tires, oil changes, car washes and repairs).
Or, you could just use the standard mileage rate. Have your tax gal or guy go through both methods to find the one that saves you more money.
By the way, if you’re audited, the IRS will only ask for a three-month mileage log.
Tip: Make it a habit to get your oil changed as soon as possible at the beginning of the year.
The invoice should list your mileage so it can be used as third-party proof of the year’s beginning mileage, according to “The Tax Coach” for agents, Bill Zumwalt, in Tulsa Oklahoma.
Hire your kids. Seriously.
Put them to work cleaning your office, wiping down your signs or performing research. Any kid, even as young as 7, can perform meaningful work for your real estate business.
Read more about it in our Tax Tips for Agents download. And, as always, we urge you to get advice from your tax professional.
Hire freelancers. The best way to outsource some of the tasks you’re either not good at or don’t have time to perform is to hire freelancers. What you pay them is tax deductible on IRS Schedule C, Part II, Line 11, Contract Labor.
Learn more about this deduction in the instructions for Schedule C.
Then, there is the super-sized standard deduction: $12,000 for single filers and married filers filing separately, $18,000 for heads of household and $24,000 for married filers filing jointly.
Remember, we aren’t tax professionals (FAR from it!), so the best person to consult with about taxes for real estate agents is your accountant or other tax professional.
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