Realtors Should Use the 4th Quarter to Maximize 2020 Tax Planning Efforts

As a Realtor, your income is inherently difficult to predict and maintaining adequate cash flow can be challenging, even in years of record sales. Tax planning can also be intimidating, as tax law, deductible expenses, and available tax credits are constantly changing. Add in the current state of the economy, and 2020 can seem truly overwhelming. As we approach the end of the year, I want to highlight how real estate agents can use the 4th quarter to their advantage by developing a solid tax planning strategy.

Start Early

As a Realtor, your tax planning considerations are complex, and the implications, whether good or bad, can be far-reaching. So, consulting your CPA is arguably the most important step in establishing a comprehensive strategy and implementing your tax planning efforts effectively. That’s what we’re here to do! The strategies best-suited to you depend on your specific circumstances, so it’s advantageous to approach your CPA with certain 2020 information already on-hand, such as an estimate of your income and a list of your expenses. This information gives your CPA a snapshot on which to base your tax planning strategy. 

Explore Possible Deductions

Since you’re likely an independent contractor, your deductible expenses will look a little different than those of W-2 earners. And deductions may be more abundant than you think. When you talk to your CPA, it’s important to explore your options and to obtain a list of all the information and documentation needed to maximize and support your deductions. 

As a Realtor, you spend a lot of time marketing yourself and your properties. These expenses are largely deductible and include items such as websites, open house materials, business cards, and mailers. Commissions paid to other agents, licensing and renewal fees, membership and MLS dues, educational and trade show expenses, and E&O insurance premiums are also deductible expenses. 

Transportation is another key area for real estate agents to examine. Since the PATH Act in 2015, real estate agents can immediately deduct all, or a greater portion, of business-related purchases, which increases your tax savings greatly for purchases such as a new car. Lease costs, maintenance and repairs, gas, mileage, auto insurance, and parking may all provide additional deductions. Your travel, lodging, and meal expenses associated with business or business-related trips are also deductible. 

Because you’re an independent contractor, your office supplies, equipment, and your home office expenses, including rent or mortgage and utilities, or desk fees for your agency, are deductible, as are phones, phone plans, and certain softwares. Some private health insurance premiums and retirement contributions may be deductible, and depreciation for items such as your vehicle, office furniture, and equipment may be deducted. In planning with clients, I also help Realtors determine if they qualify for Section 199a, a deduction that, for some, is equal to 20% of their business profit.

Using the 4th Quarter to Prepare 

Ask more of your CPA this year. Ask about other deductions, tax credits, and legislative changes that may affect you, such as recent modifications to charitable contributions, excess business losses, net operating loss (NOL) rules, and refunds for alternative minimum tax (AMT). Take a look at our article on general 2020 tax planning for more information. 

Preparing for maximum deductions and increased cash flow takes some effort. Using the insight provided by your CPA, make sure your books and applicable records are in order ahead of filing for 2020. And ask if your CPA has any resources available to help you track this information. The extra effort now will be worth it when you see the tax savings!

Contact Abbott & Company
My goal is to maximize my client’s benefits and minimize their tax exposure. I want to ensure each client receives the extra time this year calls for to implement any changes that have come about since the onset of the COVID-19 crisis. If you’re looking for a CPA to help you strategize and implement the tax plan that’s best suited to your needs and goals, I’m here to help. Contact me today to get started.

As a CPA and small business owner with experience in corporate America, Mellinda Abbott is a distinguished, invaluable personal and business tax advisor. She understands the everyday issues, compliance matters, best practices, and operational concerns of her clients. Mellinda prides herself on fostering personal client relationships while providing year-round, customized services to her clients designed to maximize savings, limit tax exposure, and, most importantly, to help her clients attain their financial goals.