Taxes for Real Estate Agents. Strategic Tax Group Steve Eubanks, EA www.strategictaxgroup.com 972-788-1524 [email protected] / [email protected] 4518 Nashwood Lane • Dallas, Texas 75244. Steve Eubanks, EA (Enrolled Agent). A tax professional since 1986.
Taxes for Real Estate Agents
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Licensed by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS), including examination, collection and appeals functions as Enrolled Agent.
Enrolled Agents adhere to a code of ethics and professional conduct and are required by IRS to take Continuing Professional Education.
Provide tax preparation, representation, tax planning and other financial services to individual and business taxpayers.
Licensed Real Estate Agents
IRS ruling Statutory NonEmployee Independent Contractor. Treated as Self-employed.
Substantially all payments for their services relates directly to sales or output rather than hours worked.
Their services are performed under a written contract providing that they will not be treated as employees for Federal Tax purposes.
Form 1040, Schedule C reporting for Real Estate Agents as Sole Proprietorships
Schedule C: Income
Report on Schedule C, Line 1
1099-MISC, Box 7, Nonemployee Compensation ($600 or more)
Schedule C: Income
Schedule C: Expenses
Ordinary and Necessary
Auto (actual expenses or standard mileage rate)
Meals and Entertainment (50% limitation)
Depreciable Assets (Form 4562)
Home Office (net income limitation) (Form 8829)
Schedule C: Common Expenses
Advertising Costs: Signs, newspaper advertising, flyers, online advertising, post cards, promotional materials, and anything else that was used to market your business may be deductible.
Professional Fees: Your MLS Board Dues, Realtor Dues, Renewal fees with your state board, Errors & Ommissions Insurance, and any other professional fees you incur may also be deductible.
Education Materials: Any continuing education classes or seminars, books, magazines, etc.
Car/Driving Expenses: This is an obvious one most agents remember - but many often get confused about how much mileage they can deduct or how to separate “personal” and “business use”. Another confusing thing for many agents is deducting depreciation if you own your car or lease payments if you lease. You can choose to deduct per mile driven or you can also do the actual cost of insurance, gas prices, repairs & maintenance, and other vehicle expenses.
Office Equipment: Office equipment can include desk fees if you have them at your office, computer/software, phone fees (including cell phone), cameras, office supplies, and anything else related to necessities of running your office.
Business Entertainment: You can deduct fees for dinners, event tickets that are business oriented, entertaining for business at home, and anything else related to costs you incurred for entertaining business clients. Be careful with this one - be sure it was really for business before claiming it.
Business Use of Home (Form 8829)
To deduct expenses for business use of the home, part of your home must be used regularly and exclusively as one of the following:
The principal place of business for your trade or business;
The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
In connection with your trade or business, if you use a separate structure that is not attached to your home.
Where the exclusive use requirement applies, you cannot deduct business expenses for any part of your home that you use for both personal and business purposes. For example, if you are an real estate agent and use the den of your home to make appointments and also for personal purposes, you may not deduct any business–use–of–your–home expenses. Further, under the principal-place-of-business test, you must determine that your home is the principal place of your trade or business after considering where your most important activities are performed and most of your time is spent, in order to deduct expenses for the business use of your home.
Deductible expenses for business use of your home include the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. You may not deduct expenses for lawn care in general or for painting a room not used for business.
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners.
You figure SE tax yourself using Schedule SE (Form 1040). Social security and Medicare taxes of most wage earners are figured by their employers. Also you can deduct half of your SE tax in figuring your adjusted gross income. Wage earners cannot deduct social security and Medicare taxes.
SE tax rate. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).
Maximum earnings subject to SE tax. Only the first $102,000 of your combined wages, tips, and net earnings in 2008 is subject to any combination of the 12.4% social security part of SE tax, social security tax, or railroad retirement (tier 1) tax.
All your combined wages, tips, and net earnings in 2008 are subject to any combination of the 2.9% Medicare part of SE tax, social security tax, or railroad retirement (tier 1) tax.
Adjustments to Income
A traditional IRA lets you contribute only $5,000 annually in pretax income toward retirement
while a Keogh or SEP-IRA lets you contribute the lesser of 25 percent of earned income or $46,000.
A SIMPLE IRA lets you reduce your pretax income by $10,500 a year, plus your company can contribute a match of up to 3 percent of your compensation.
100% of cost
Not eligible for any group insurance
Net income limitation
Adjustment for one-half self-employment tax calculated.
Estimated Tax Payments
You must pay estimated tax (Form 1040-ES) for 2009 if both of the following apply.
You expect to owe at least $1,000 in tax for 2009 after subtracting your withholding and credits.
You expect your withholding and credits to be less than the smaller of;
90% of the tax to be shown on your 2009 tax return, or