Common Tax Filing Mistakes Made By Real Estate Agents
A real estate agent is a licensed professional who represents buyers or sellers in real estate transactions. They usually work on commission, being paid a percentage of the property’s sale price. So, while hard work is essential in this field, according to the Bureau of Labor Statistics, the average income for real estate agents in the state of California is $73,450, making it a lucrative career choice for many.
However, like in any other profession, real estate agents do need to pay self-employment taxes and income tax and hence do not escape the taxman. Filing taxes can be complicated, and avoiding a dreaded audit from Uncle Sam is paramount for most agents. For example, as the tax filing deadline comes ever closer, real estate agents all want to pay as little tax as required while staying compliant with the authorities and off the radar of the ever-watchful Internal Revenue Service (IRS).
To help you avoid some basic errors that could prove costly, Scott M. Penn, CPA, PC & Tax Solution Services, has put together a list of the most common mistakes real estate agents make when it comes to taxes.
1. Not maintaining an up to date mileage record
For many real estate agents, mileage deductions make for a sizeable tax deduction. Hence it is a significant mistake not to maintain up-to-date mileage records that are contemporaneous and can be made available as a hard copy when requested. You not only have to keep track of your business miles, but you have to maintain written proof of the total annual miles you drove as well.
The absolute best way to keep track of your total annual miles is to get your vehicle serviced at the end of every year by a professional service company. The reason for this is, they document your odometer reading which now becomes third-party support that an auditor cannot negate as proof. Additionally, you should keep copious records of where you went, the day you went there, what was accomplished, and the business miles you drove.
2. Forgetting little deductible expenses
Another mistake real estate agents often make is not keeping track of or realizing the various types of expenses they can deduct outside of the office on their income tax returns. Cell phone expenses, internet charges, client meals bills, closing costs, signs, home stagings, canvassing expenses, and snacks for open houses, are just a few of the expenses you can deduct on your tax return. So remember, even seemingly insignificant costs can add up over a year, and don’t miss out on tax deductions.
3. Forgetting that CPA expenses are deductible
Every time you visit your (Certified Public Accountant) CPA, you can deduct the miles to and from the office and the costs of snacks or gifts you bring. You should do your research, but if you are in another local other than your usual location, there are many expenses now available to you. For example, lodging, if the meeting location is so far away from your home that driving home could make you a hazard on the road, along with meals, miles, etc. Just make sure that what you are doing and how you are doing it is truly business motivated, not just because you want a vacation. Similarly, be sure to keep copious notes.
To avoid these and other mistakes, reach out to the expert at Scott M. Penn, CPA, PC & Tax Solution Services. We are committed to providing professional services for individuals and businesses who look forward to improving their finances and achieving full economic potential and independence, enabling them to maximize their income and reach their goals.