How To File Your Taxes As A Real Estate Agent

Every year, real estate agents must file their taxes. But a real estate agent’s taxes are different than those of any other profession.

Your filing status, deductions, forms, and overall tax management may seem complicated.

This article reviews the most common tax category that real estate agents fall into and how to manage filing your taxes.

These tips outline how to confidently file your taxes as a real estate agent who files as a sole proprietor.

Are You Self-Employed Or An Employee?

The status of self-employed real estate agent or employed real estate agent affects how you do your taxes. Most real estate agents are self-employed, but some are considered employed.

Employed Agents

The federal government sees licensed real estate agents as self-employed individuals when it comes to paying income and employment taxes if:

• Your taxes are automatically withheld from an employer. Employers do this to ensure they pay the appropriate amount to the government.
• Real estate agents who are considered “employed” do their taxes like any other employee in the US.

The federal government sees licensed real estate agents as self-employed individuals when it comes to paying income and employment taxes if:

• Payment for their services directly relates to sales rather than hours worked.
• Services performed fall under a written contract stating they will not be treated as employees for Federal tax purposes.
• An employer does not take taxes out of the income.

Why Are Taxes for Real Estate Agents Filed Differently?

Many real estate agents run their business as a sole proprietorship and are seen as either self-employed or contractors. This means that these agents operate their own business alone. A sole proprietorship means a real estate agent does not work as an employee, does not co-run their business with anyone else, and does not incorporate their business.

Because of how real estate agents are paid commission based on their sales performance, this is how most real estate agents must categorize themselves when filing their taxes.

What Is The PATH Act?

The Protecting Americans from Tax Hikes (PATH) Act provides sole proprietor businesses, including real estate agents and brokers, tax relief through business-related purchases.

There are limits on what and how many deductible expenses you write off as a real estate agent. For this reason, it is wise to consult with a tax professional about your business purchases.

What Tax Deductions Do Real Estate Agents Have?

There are certain business-related items that real estate agents can deduct from their taxes. Significant and minor expenses add up quickly. Here is a list of standard deductions:

• Education – Part of your job is staying current on the market and learning new strategies that help you serve your clients. You can deduct any expenses related to furthering your education. These deductions include:

  • Real estate training classes
  • Continuing education classes
  • Coaching 

• Marketing assets – Any campaign materials you use to attract homeowners are allowable deductions. These materials include business cards, mailers, open house signage, flyers, and other assets.

• Electronics and software – Deduct any investments you made in electronics and software for your business. This includes a phone upgrade, laptop, photo editing software, camera, or other electronics and software.

• Digital marketing and advertising – Any expenses related to digital marketing and advertising are deductible. You can deduct expenses if you build a website, run ads, invested in digital marketing, or use design software.

• Transportation – If you use a vehicle for work, your vehicle-related expenses are deductible. These expenses include:

  • Maintenance
  • Mileage
  • New car purchase
  • Lease cost

• Licensing – You can deduct license renewal fees, licensing fees, Multiple Listing Service (MLS), and association fees are deductible work expenses.

• Gifts – Gifts are limited to $25 per client per year. You can deduct $50 if a couple makes the purchase.

• Utilities – Any utilities you use for your business are deductible. This includes internet, phone, and power bills, all necessary to do your job. If you work from home, all these deductions still apply.

• Insurance – Most real estate agents carry general liability and professional liability insurance. Anyone who has their own policy—one not covered by your brokerage—can deduct this insurance.

• Work-related travel – Trips are a necessary part of working with clients. Whether you are seeing different properties or attending conferences, any travel you make related to work is deductible. Deductible travel expenses include airfare, lodging, and meals.

• Home office expenses – If you rent or own a home and use a portion of that as an office space, you can write that off as well. How much you can deduct depends on the square footage used as an office space.

When To File Your Taxes As A Self-Employed Real Estate Agent Or Independent Contractor

Self-employed real estate professionals must file taxes in an accurate and timely manner every quarter on the following dates:

These payments include your income taxes, Social Security, and Medicare. The following states do not have income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming.

Forms Needed To File Taxes As A Real Estate Agent

Self-employed real estate agents need several types of forms while filing their taxes.

1099-MISC

The 1099-MISC is similar to the W-2. Your broker provides this form every year. This form indicates how much money you made while working as an independent contractor.

Form 1040

The 1040 form is your annual tax return form. This form is used to report individual income tax and schedules SE and C. Schedule SE helps you calculate your self-employment taxes. Schedule C helps you calculate your net profit.

Form 1040-ES

This booklet helps you estimate and pay your quarterly taxes.

Your State’s Income Tax Forms

Depending on which state you practice in, you may have to file income tax in addition to federal tax. The following states do not have income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming.

How To File Your Taxes As A Self-Employed Real Estate Agent Or Independent Contractor

When it comes to filing your taxes, it is recommended you use an accountant or a tax software. There is even a tax software built specifically for real estate agents called Realityzam.

Don’t forget to keep records of your taxes from previous years.

Written and Published by: VanEd