The typical real estate agent works for herself, collecting fees and paying expenses. You can save on your taxes by turning those expenses into deductions when you file taxes as a real estate agent. To take full advantage of the tax rules, you’ll need to do some advance planning and keep good records.
Real Estate Agent Tax Status
Real estate agents are usually self-employed sole proprietors rather than employees, according to the Internal Revenue Service. When working under contract with a realtor, real estate agents are considered statutory non-employees as long as the contract states that they are not employees for tax purposes, and they receive all or most of their payments through sales or other output and not from wages.
As a sole proprietor, you still file a Form 1040 tax return just like other individual taxpayers. At a minimum, you also have to complete Schedule C (Form 1040), “Profit or Loss from a Business” and Schedule SE (Form 1040), “Self-Employment Tax.”
Exploring Deductible Expenses
Some real estate agents work out of a home office, others maintain a separate office location, and some do both. The IRS allows you to deduct part of the cost of a home if your home office is the primary place where you perform bookkeeping and administrative tasks. The cost of staging a home, or preparing it before showing it to prospective buyers, is a deductible expense. You also can write off the cost of home warranties you provide to clients as part of the home sale.
Office supplies and equipment are also deductible. That includes computers, printers and fax machines that you purchase to conduct business. Of course, larger items can be deducted fully in the year that you purchase them, or depreciated over several years. Don't forget to keep all of the receipts for any supplies needed to run the office as well, such as printer ink, printer paper, pens and pencils, and document-sized envelopes.
Paying for Help
Sometimes it makes sense to outsource jobs like photographing homes. When a real estate agent pays freelancers for services or products, it is considered a business expense. You are required to report such fees to the IRS when they exceed $600 in a year to a single individual. To report what you pay to independent contractors, you will file Form 1099-NEC.
Real estate assistants are another labor expense you might have. Unlicensed assistants can relieve you of routine chores ranging from answering the phone to preparing and placing advertisements. When you hire an assistant, you have to deduct payroll taxes, remit them to the IRS and provide your employee with a W-2 form at the end of the year.
Read More: Types of Business Expenses
Filing Tax Returns
You are responsible for withholding your own taxes and sending them to the IRS when you work as a self-employed real estate agent. If you expect to owe more than $1,000 for the year, you must file an estimated tax return and make payments each quarter in addition to filing an individual tax return at year’s end.
The key to filing taxes as a real estate agent is to keep receipts, records of hours worked and compensation to employees and records that document your expenses. This will enable you or your tax preparer to back up the deductions you claim. Keep in mind that you must report self-employment earnings in any year they total $400 or more, so chances are this will be necessary even if you only sell real estate part-time.
Read More: What to Bring to the Tax Preparer
Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.