Every year the IRS and/or Congress make changes to income tax laws. Forget what you know about income tax deductions in 2021. Save money learn real estate agents’ tax deductions in 2022.
KEY TAKEAWAYS
- Real estate agents save 7.65% by avoiding the Social Security and Medicare withholdings from their commissions.
- Licensed agents have 115 tax deductions available to them.
- 100% business meals tax deduction allowed through 2022.
- Learn the important tax filing dates in 2022.
- Know the standard federal income tax deductions in 2022.
- Learn how to pay fewer 2022 sales transaction fees by choosing the right brokerage.
Real Estate Agents Are Independent Contractors
The IRS classifies real estate agents as “statutory independent contractors (also called statutory nonemployees) for federal tax purposes”. Basically, you are independent contractors because most agents meet these requirements:
- Licensed by the state as a real estate agent or broker;
- Agents get paid by sales commissions rather than by the number of hours worked; and
- The written broker-agent (licensee) contract states the agent is not an employee of the brokerage.
Benefits of Independent Contractor Status
Employees must endear federal taxes, social security, and Medicaid withholding from their paychecks.
Agents Save 7.65%
First of all, as independent contractors, real estate agents avoid paying withholding of their Social Security Tax or Medicare contributions from their commissions.
This amounts to a savings of 7.65% from the Federal Insurance Contributions Act (FICA) contributions. These include U.S. Social Security Taxes (6.2%) and Medicare (1.45%).
Instead, agents pay federal taxes on their income minus deductions. Just like 1099 independent contractors.
Real Estate Agents Tax Deductions 2022
Some CPA and tax attorneys’ websites list up to “115 Popular Tax Deductions For Real Estate Agents For 2022”. Yet, we are going to make it simpler by breaking down an agent’s tax deductions into five categories:
- Licensed agent’s normal deductions;
- If you work from home;
- If you drive to work;
- Discuss work at a restaurant; and
- Leaving town for work.
Licensed Agents Normal Tax Deductions
As a licensed agent, the IRS accepts the following as normal tax deductions:
- Brokerage fees;
- Franchise fees;
- NAR dues for Realtors;
- MLS dues;
- Desk fees;
- Errors & Omissions (E&O) Insurance;
- Association/Board dues; and
- Chamber of Commerce dues.
Also, the IRS allows for deductions for marketing and promoting your business such as:
- Marketing and promotional expenses include:
- Business cards;
- Listing flyers;
- Open house signs;
- Listing yard signs;
- Email and direct mail notices;
- Producing videos and podcasts;
- Virtual promotions;
- Website and blog development and maintenance; and
- Advertising online, magazines, newspapers, and other methods.
Education and training required to maintain your license and improve your professional skills are fully deductible including:
- Continuing education;
- Coaching;
- Learning marketing skills;
- Online courses;
- Real estate books;
- Training; and
- Audible subscriptions for business learning.
Services and Fees related to your real estate agent business may only be small recurring monthly fees, but they add up over the tax year like:
- Internet service;
- Ongoing App subscriptions;
- Cell phone (percentage of business use);
- Bookkeeping fees; and
- Interest in business purchases.
Insurance tax deductions include:
- Auto insurance;
- General business insurance; and
- Private health insurance for self-employed is 100% deductible (includes your spouse and dependents).
If You Work from Home Tax Deductions
Even before the COVID-19 pandemic closed most offices, agents often worked from home. Nowadays, nearly every agent maintains a home office.
Your home office deduction requires a separate space in your home dedicated only to perform your business as an agent. In case of an IRS audit, you must prove the office separation from the rest of the home like a room only used as a home office.
The IRS allows two ways to take your home office deduction, the simple method or the complex method.
The Simple Method – You multiply the square footage of the home office space by $5 (up to a maximum of $1,500). For instance, a 200 square foot room home office multiplied by $5 = $1,000 as your simple deduction.
The Complex Method – This requires itemizing all the related costs for your home office multiplied by the percentage of the house you use as your office. Related costs include:
- Mortgage interest/rent;
- Insurance;
- Security system;
- Maintenance/repairs;
- Property tax; and
- Utilities.
Also, the IRS allows for deductions for home office supplies which includes furniture and client refreshments (coffee, tea, water, etc.). In addition, you can deduct business tools and software (CRM system and QuickBooks). Business equipment deductions also include maintenance and repairs.
Employees and virtual assistants are also deductible.
Gifts to clients, prospects and associates are deductible up to a $25 limit. These include real estate closing gifts and holiday gifts. A great opportunity to add your branding to the gift for marketing purposes.
If You Drive to Work and Drive Clients Tax Deductions
Commuting to the brokerage and back along with driving clients around to preview homes allows for automobile deductions. You have a simple method or a complex method for deductions.
The Simple Method – for 2022, the standard mileage rate is 58.5 cents per mile. For example, if you drove 10,000 miles for business in the same tax year your deduction is $5,850. Also, you can add registration fees, car loan insurance, tolls, and parking fees.
The Complex Method – You add up all the itemized expenses during the tax year to maintain and service your car like:
- Gas and electricity;
- Maintenance;
- Car washes;
- Lease costs;
- Parking;
- Licensing;
- Registration;
- Auto loan interest; and
- Vehicle Depreciation (four ways to calculate).
Discuss Work at a Restaurant Tax Deductions
Known as the meal tax deduction where you discuss business with a client, co-worker, or prospect while purchasing a meal. The write-off is 100%. Yes, you read that right. In 2021, the IRS issued guidelines allowing 100% business meals (food and beverages) deduction through December 30, 2022.
The IRS requires that the business owner (or an employee) be present during the meal and not overly “lavish or extravagant under the circumstances”. So, use 4-Star restaurants instead of 5-Stars.
Next year, this deduction will return to its former 50% write-off.
Learn more about this valuable deduction by reading our post: “How to Take 100% Business Meals Deductions for Real Estate Agents 2021 – 2022”.
Leaving Town for Work Tax Deductions
If you plan to attend the NAR Annual Convention or travel for other business purposes the IRS allows you certain deductions.
Expenses exclusively for business are fully deductible. These include:
- Airfare or other means of travel;
- Lodging; and
- Local travel (taxis, car rental).
Mixing business with pleasure calls for calculating the actual percentage of time spent on business.
Important Tax Due Dates in 2022
Besides explaining the many tax deductions for real estate agents in 2002, it’s important not to miss critical IRS reporting dates. Here is a list of these important dates:
March 15, 2022 – Deadline for partnerships tax returns which includes LLCs and S-corporations (if allowed for real estate agents in your state).
April 18, 2022 – Deadline for 2022 Q1 estimated tax payments. These include sole proprietor (business reporting on a Schedule C) a C-corporation, and individual tax returns. Also, if you filed an extension for this deadline, your Individual Tax Return Extension Form is due on this date.
June 15, 2022 – Deadline for the 2022 Q2 estimated tax payment.
September 15, 2022 – Deadline for the 2022 Q3 estimated tax payment.
October 17, 2022 – Deadline for the 2021 individual tax return after receiving a filing extension.
Standard Federal Income Tax Deductions 2022
Married couples filing jointly for the 2022 tax year the deduction rose to $25,900 ($800 more than in 2021).
Single taxpayers and married individuals filing separately get a deduction of $12, 950 or 2022 ($400 more than in 2021). Head of household gets $19,400 deduction for 2022 ($600 more than in 2021).
Save Money Learn Real Estate Agents Tax Deductions 2022 – Conclusion
Many ways to save money – learn real estate agents tax deductions 2022. Only pay your fair share of income taxes and keep the rest for a profitable 2022. These include:
- One large saving is 7.65% by avoiding Social Security taxes and Medicare withholding;
- With 115 tax deductions available, agents will find many ways to pay fewer taxes; and
- The 100% business meals tax deduction ends on December 30, 2022. The deduction will revert to its original 50% rate in 2023.
Learn How to Pay Fewer 2022 Brokerage Sales Transaction Fees by Choosing the Right Brokerage in San Diego County
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Steven Rich, MBA – Guest Blogger
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