Last Minute Real Estate Agents Tax Savings Tips 2018

Last minute real estate agents tax savings tips for 2018 involve taking advantage of legal tax deductions.

December 31, 2018, is not only a night to celebrate the coming New Year, but your last chance to make significant income tax deductions for 2018.

Now is the time to add up your taxable income for the year to see if you need additional deductions. Remember, never lie on your tax returns as they carry severe penalties.

Note: This is not to be taken as accounting, tax, or legal advice. This is merely information you can talk to your CPA about.

In order to take advantage of the last-minute income tax savings for the 2018 tax year, the following must be completed before the end of December:

1. Create a SEP (Simplified Employee Pension)

The SEP is a form of an IRA, often called a SEP-IRA.

The Vanguard Group, one of the world’s largest investment management companies with 19 offices around the world, provides an excellent description of a SEP-IRA.

A SEP-IRA (Simplified Employee Pension) is a tax-deferred retirement plan for self-employed persons. Not only applicable to someone who owns a business, but also for those earning freelance income. This includes real estate agents.

Self-employed persons can contribute up to 20% of their net income. The IRS defines self-employed net income as “the net profit from IRS Schedule C reduced by the deductible self-employment tax”.

According to The Vanguard Group, the SEP-IRA can be invested into bonds, mutual funds, CD’s (Certificates of Deposit), and corporate stocks.

Investopedia explains the SEP-IRA maximum limit on contributions for self-employed persons as 20% “of their net adjusted annual self-employment income” not exceeding $55,000 for the 2018 tax year.

2. Buy or Lease a New Car

A shiny new car makes a difference in the real estate industry.

Purchasing or leasing a new car before the year ends gives you a nice tax deduction for 2018 (based on your upfront payments) and for the 2019 tax year. According to AutoTrader, all of the carmakers offer big discounts in December before the 2019 models take over.

Many taxpayers are surprised to learn that they can only deduct the depreciation of a new car. However, leasing a car for business purposes allows you to deduct all of the monthly payments, according to TurboTax.

The IRS allows you to deduct the percentage of business use of a leased car while the personal usage percent cannot be deducted. Read more about this with IRS Publication 463. Don’t worry about the 2017 date, the IRS explains that it also applies for 2018 tax returns.

3. Holiday Gifts for Clients

Deduct the value of every Christmas (or holiday) gift given to clients up to $25.

That’s right, the IRS allows you to deduct all gifts up to $25 in value for every client and prospective client. The IRS explains the business gift deduction Here. Basically, the IRS explains the business deduction as:

The maximum deduction for the costs of a business gift is $25 given directly or indirectly to every person in the tax year.
You must keep records proving the business purpose of the gift detailing the amount spent.

Therefore, buy your business gifts with a check or card and keep a copy of them with a notation of business purposes. For example, a copy of a check with a note explaining “$25 fruit basket as a holiday gift to my clients, Mr. & Mrs. Smith”.

4. Home Office Deductions

According to Forbes, a dedicated workspace in your home used only for your real estate business qualifies for a home office deduction.

Forbes also claims that home office deductions no longer trigger a tax audit from the IRS.

A home office qualifies for deductions if it’s a “principal place of business” and the space used “regularly and exclusively for business”.

The IRS explains the home office deduction with the option to use the regular method (requires receipts for every expenditure) or the simplified option. The simple method reduces the time-consuming record keeping by allowing a set rate based on the square feet used solely for business purposes. This percentage is applied to all home expenses such as mortgage, rent, electricity, gas, etc. as deductions.

The National Association of Realtors (NAR) points out that if your broker provides you with an office or workspace (exclusively for you), you can’t write off your home office expenses.

As long as your home office is exclusive with no other outside office, the tax deductions apply.

NAR also provides a useful “Calculating the Home Office Deduction” article.

5. Purchase Real Estate Apps and Software

Give yourself a Christmas or New Year gift by upgrading all of your apps and software and deduct them.

You must keep pace with your competitors by investing in the latest open house software and your sites tracking apps, etc.

Subscribe to fully deductible Customer Relationship Management (CRM) apps and software services.

6. Purchase Office Equipment and Supplies

Besides a home office deduction, buy all of the supplies and equipment you need for 2019 now.

Upgrade your smartphone to deduct costs based on business usage.

Office furniture used to be depreciated over 7 years. But, thanks to 2018 tax laws, buying office furniture whether new or used can be deducted in the same tax year.

7. More Ads and Marketing

Increase your advertising and marketing in December to bear fruit in 2019 and deduct all of the expenses in 2018.

Purchase virtual staging apps, postcards, invest in different advertising venues. Make your deductions in 2018 and use them in 2019.

8. Book Conventions and Conferences Now

If you need more tax deduction now, book travel and hotels for the 2019 NAR Events such as training sessions, meetings, and conferences.

Or, sign up for the 2019 Inman Connect in New York. Don’t forget to keep records of all your meals during those events to qualify for the 50% business meals and beverages deductions on your 2019 taxes.

Pay for all of these business events before December 31st to deduct the expenses in your 2018 tax return.

Or, wait until 2019 starts if you want the deductions for the 2019 tax year.

9. Taxi and Uber Fares

Living in a congested urban area?

Use Uber and taxis to travel to business meetings and events. Totally tax-deductible while reducing the stress of urban commuting and finding parking spaces.

Use your non-driving time to check on messages, make phone calls, or just take a quick nap.

10. Hire a Transaction Coordinator

Hiring a Transaction Coordinator (TC) is not only completely tax-deductible, but also saves you time and limits your exposure to transaction-related lawsuits.

Read our article about how TC’s prevent lawsuits. You can sign a contract for future services and pay for some of them before December 31 to get tax deductions for 2018.

Contact Us for all your transaction coordination needs.

Last Minute Real Estate Agents Tax Savings Tips for 2018 include the following disclaimer.

Disclaimer: The following information provided for general informational purposes only. While linking to reliable sources, understand that we do not provide legal, tax, or accounting advice. You should always consult with your own legal, tax, and accounting advisors regarding these topics.

Steven Rich, MBA – Guest Blogger

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