Licensed real estate brokers often file as self-employed which can result in a tricky to navigate tax process. Jordan of Vanguard Global Real Estate needed assistance planning for tax season. Anil from 212 Tax was able to take the headache out of preparing his business taxes, and the 212 Tax team keeps his business on track year-round.
There are a lot of tax planning tips for real estate brokers looking to save the most money during tax season. Keeping detailed records and working with a tax expert is the best way to pay your taxes accurately and easily every time.
Do your best to keep accurate records.
Keeping accurate records in your business is the most important step to tax planning. You should keep records of all of your expenses as well as supporting documentation like receipts and bank statements. Track your business-related mileage, and even consider using a separate business account for all business expenses.
In most cases, out-of-town travel expenses used for business purposes are also deductible as business costs, so remember to include the cost of lodging, transportation, and any additional expenses in your records. Enlist the help of a tax professional to create a system of recordkeeping that works for your business.
Avoid penalties by making quarterly payments.
While it can be intimidating to think about paying your taxes not once, but four times each year, paying quarterly taxes is a good way to avoid unnecessary interest or penalty fees. Not paying quarterly taxes can result in a penalty fee between 6%-8%, which can be a considerable amount depending on your overall earnings.
Filing quarterly payments requires a 1040-ES form which estimates how much you’ll make during the year and a payment amount. If you are unable to make quarterly payments due to an unexpected loss of income, you still have options. Speak with a qualified tax expert about filing quarter payments if you need assistance filing confusing forms or deciding your repayment options.
Make the most of your deductions.
There are a surprising number of deductions available for real estate brokers that might not be apparent to a first time filer. It is worth researching deductions to keep costs as low as possible. Everything from your home office to your referral gifts are deductible. It might even pay to hire your own children as their wages are deductible to you during tax season and they are free from taxes if they are under 18.
If you use a tax professional to help prepare your business taxes or business documents, these are deductible as well. Sometimes, you can think out of the box when it comes to tax deductions as a real estate broker. Researching the different deductions available to you can help you plan for your taxes effectively.
Save big by creating a retirement plan.
It pays to be prepared for your retirement. Contributing to a SEP-IRA, SIMPLE IRA, or solo 401(k) can reduce your overall tax bill while building a tax-deferred investment. While contributions are limited by plan, it benefits you to create a retirement plan. A qualified tax professional can direct you in a retirement plan that works for your situation while assisting with the deduction process.
Tax Planning for Real Estate Brokers
Tax code is complicated, and the process becomes more confusing when faced with self-employment taxes and additional hurdles. When in doubt, always speak to a qualified tax expert like the team at 212 Tax about how to best approach your tax situation. You might be overlooking important deductions or filing statuses that could be increasing the amount you pay to the IRS. You owe it to yourself and your business to give your taxes the attention and planning they deserve to keep costs low and profits high.