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5 Common Mistakes Real Estate Agents Make with their Taxes

Keep more of your earned income in your pocket when you stop making these mistakes.

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Whether you've long considered real estate for work or have been an agent for a while, you should know that a lot of agents lose money when they file their taxes. Many agents make five common mistakes while filing taxes. Continue reading to discover what you may have missed out on and what you can save this upcoming year.

Mistake #1: Having the Wrong Tax Structure

You want to be protected in anything you do. As a real estate agent, it's a good idea to establish a Limited Liability Corporation for yourself. LLCs essentially create another entity. As a real estate agent, you can avoid some of the taxes by establishing an LLC.

As a separate entity, the LLC does not pay for taxes. However, you will pay taxes from profits on your personal taxes. In addition, the IRS requires the LLC to be taxed as a sole proprietor, partnership or corporation. This is dependent upon how you set up your LLC and how many members there are.

Mistake #2: Not Maximizing Deductions

You want to take advantage of as many deductions as you can. Most real estate agents use their personal vehicles to show houses to clients and to conduct other business. The IRS allows a real estate agent to deduct by mileage or by total expenses associated with using their vehicle for business. Professional fees, such as obtaining your real estate license, can also be deducted.

In addition, you can deduct your advertising and marketing expenses as well as equipment and personal expenses, which means you can deduct your cell phone or computer usage for emails and other business. However, you need to keep an accurate record of everything you use for business. If your computer isn't for business only, you cannot deduct it in this manner. If you have a home office, you can only deduct a portion of your home's utilities and rent.

Mistake #3: Not Declaring Themselves as Real Estate Professionals

You want to keep as much of your investment as possible. This means you should claim "Real Estate Professional" as your status. If you claim "Real Estate Professional," you can deduct all real estate losses. Without this status, you could only claim 25 percent if your income is below $150,000, and each subsequent year the percentage of that amount would decrease until you eventually hit zero. With this status, you can claim it regardless of your adjusted gross income, and it can be claimed each year.

Mistake #4: Not Taking Advantage of Retirement Plans for Self-Employed

When you're self-employed, you are taxed twice because to the IRS—both as the employer and the employee. You have to pay twice as much in Social Security and Medicare taxes. However, by taking advantage of retirement plans that are allowable, you can help to decrease your taxable income and put money away from retirement. If you choose to go with a solo 401(K), you can contribute money as an employee and as an employer.

Mistake #5: Not Taking Advantage of a Husband and Wife Team for Taxes

There is a unique dynamic with husband and wife teams. Husbands and wives who work together are greatly in tune. They also tend to have the same interests. Because of working together, they tend to be more focused on work and can dedicate a larger portion of the day to being at work. Also, where you'd normally have one person doing your taxes, having two people means they’re more likely to catch special deductions and other tax information to get you the best return possible.

Being a real estate agent can be incredibly profitable and a lot of fun. You have flexible hours, get to work with fabulous people, and the sky's the limit as to what you can earn. But be wise because you'll want to keep the highest possible amount of your earnings in your pocket.

Not sure what tax or business structure is right for you? MaxFilings takes the guesswork out of incorporation with our Real Estate Incorporation Guide.

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