Filing taxes for your real estate business may seem intimidating, especially if you're doing it for the first time. Fortunately, with the right planning and foresight, it can be a smooth process that won't leave you mentally exhausted.
The Upcoming Tax Season: What Should You Consider?
What you earn as a realtor or a real estate agent is directly proportional to your successful property sales. Most of the time, you have to invest huge sums before you can get substantial returns.
For instance, you have to spend on marketing and promotions before you can sell a property and attract potential buyers. Of course, this doesn't only involve marketing efforts over the internet. It also requires driving around to meet potential clients - even if it isn't always a sure sale.
Tax Status
Real estate agents do all the hustle and legwork by themselves because they earn their keep through sales and commissions. Generally, the more efforts you put in, the higher the possibility of making a successful transaction.
The IRS (Internal Revenue Service) states that real estate agents are considered as self-employed sole proprietors. Additionally, even if you work for a brokerage firm, you're still regarded as a statutory non-employee because your income doesn't come from fixed wages.
Filing Taxes
A lot of money goes in and out of a single real estate transaction. Understandably, it can be difficult to keep track of them all, especially when you're handling several properties and clients all at once.
Hence, if you weren't able to keep proper records of your business transactions, you'll have a hard time garnering the necessary documents when tax season comes. Fortunately, you can rely on a real estate tax accounting software to make your tax returns easier to bear.
Though there are a lot of software or apps that can do the job, the best choice would be the one that doesn't only have a user-friendly interface, but also allows you to understand the tax process and maintain your business' profitability.
Of course, you can always choose to outsource this job to your accountant so you can focus on your business, instead. However, it's still worth learning the ropes on your own so you have an idea what really goes on concerning your taxes.
Tax Documents
As a self-employed individual, you'll need to fill out IRS Form 1040. If you'll be itemizing your tax deductions, you'll need to complete and submit Schedule A. You'll also need to fill out Schedules C (Profit or Loss from a Business) and SE (Self-Employment Tax).
Additionally, you'll need to report outsourcing fees that you pay to freelancers. The general rule is that, if a single individual's payment exceeds $600 for the whole year, you'll have to file it.
To report freelance payments, you have to fill out Form 1099-MISC. Payroll taxes must also be deducted when you have an assistant. A W2 form must be provided to them by the year's end.
Tax Deductibles
Real estate agents incur significant expenses while doing their jobs. Fortunately, they can save on their taxes by converting those expenses into tax deductibles. Make sure that you have a record of all your real estate-related transactions to benefit from this tax rule.
Upon filing your tax, you'll need to provide receipts and other authentic forms of documentation to prove that you're eligible for deductibles. Generally, a real estate expense can be deductible if it's necessary, directly linked to your work, and within reasonable amounts.
Listed below are the common tax deductions that you can avail:
● Marketing Expenses: This includes website maintenance, flyers, business cards, open house and "for sale" signages, and any other form of advertisement.
● Business Software: Any real estate software that you use to manage your business is also deductible. This includes management apps, accounting apps, and tax apps.
● Training And Education: Because the industry is always changing, further training and education regarding new real estate trends is often encouraged.
● Transportation Expenses: This includes car repairs and maintenance, gas, and insurance costs. Also covers airfare, hotel accommodation, and meals related to your business.
Other expenses that also make the cut include:
● Home and office supplies expenses
● Commissions you pay to employees and other agents
● Professional memberships and license renewals
● Gifts that you give to clients (within the $25 limit)
Handle Your Taxes More Conveniently With A Real Estate Accounting Software
Taxes aren't exactly anyone's favorite thing to manage. However, as a responsible citizen, it's your duty to know how they're done and to file them all on time.
Fortunately, you don't have to crunch the important numbers manually. With the help of a real estate accounting software, preparing for the tax season will never have to be as difficult as you initially expected.
