Year-end tax tips for real estate professionals

The end of the year is creeping up on us. You have a very short window in which to minimize your tax burden for 2018. Since we can’t stand the thought of you leaving money on the table, we researched far and wide to gather a few year-end tax tips for real estate professionals as well as a few you might want to implement in 2019.

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Save some money 

If you haven’t hit your IRA contribution limit for 2018, do it now. This is only for those who hold traditional IRAs, Roth IRA contributions aren’t deductible.

Meeting the limit for an IRA contribution can save you “as much as $1,925 in taxes based on 2018 tax rates,” if you’re in the 35 percent tax bracket according to the experts at TurboTax.

Naturally, anything having to do with the IRS is going to have some red tape and you can learn about that at Investopedia.com.

You actually have until April 15 of next year to do this and still be able to take the deduction on your 2018 taxes.

 

Spend some money

Take a look at the IRS Schedule C, especially Part II. There’s your roadmap of where to spend some money in the waning days of 2018.

Before December 31, consider prepaying for:

• That real estate conference you plan on attending in 2019. Buy your airline ticket or prepay for your hotel room.
• 2019 event expenses, such as a caterer, location rent, etc.
• Marketing expenses. If you use freelancers, such as for writing or photography, prepay for a month or two of their services in 2019.
• Website hosting
• Association expenses, such as dues and lockbox fees
• Business equipment. If you plan on buying a new laptop or other business equipment, do it now.

We mentioned earlier how notorious the IRS is when it comes to red tape, and of course there are rules around using the “spend money now” strategy. “Run this by your accountant” is our best advice.

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Your 2019 tax tips for real estate professionals

Here are some tax tips for real estate professionals that you may want to consider when planning for next year.

Start working from home

One of the best deductions you can take as a small business owner is the home office deduction. If you’re still working from your broker’s office, you may want to switch to working from home.

To qualify for the deduction, your home office must be a space that is used “exclusively and regularly as your principal place of business,” according to the IRS.

If the family uses the room when you aren’t working, it doesn’t pass the exclusivity rule.

For additional information on the home office deduction, refer to IRS Publication 587.

 

Put your kids to work

Hiring your children to work for your real estate business is one of the often-overlooked but money-saving tax tips for real estate professionals.

You’ll need to keep careful records but the effort is well worth it, according to Bill Bischoff at marketwatch.com.

“The deduction reduces your federal income tax bill, your self-employment tax bill (if applicable), and your state income tax bill (if applicable),” he claims.

Your under-18-year old child’s wages will be exempt from Medicare tax, Social Security tax and federal unemployment tax, according to Bischoff.

Plus, there are benefits for your child as well. “ … you can hire your under-age-18 child (as a legitimate employee) and his or her wages will be exempt from Social Security tax, Medicare tax, and federal unemployment (FUTA) tax,”

And, unless he or she has other income, there won’t be taxes due on the first $12,000 of income.

So, what can you hire them to do? It depends on the child’s age, but dusting your office (a great choice if you work from home), computer research, sending emails, helping out at open houses and cleaning mud off your signs are a few ideas.

When deciding how much to pay your young’n keep in mind that the IRS insists that the wage must “be reasonable for the work performed.

In other words, paying your 9-year old $60 an hour to clean the laminate floors in your home office isn’t going to pass muster with the IRS.

Get tips and warnings about hiring your kids at cripca.com and IRS.gov.

 

Buy a new vehicle

The 2018 Tax Cuts and Jobs Act has changed IRS rules around vehicles for business use and some are quite favorable for real estate agents.

According to Bischoff, you’ll get “super-favorable first-year depreciation breaks.”

Before you make the purchase, however, run it by your CPA. For some agents, leasing instead of buying gives more favorable tax treatment.

We hope you’ve enjoyed these tax tips for real estate professionals, but here comes the disclosure: we aren’t lawyers. We aren’t tax specialists and we aren’t accountants. See yours when devising a strategy on how to save money on 2019’s taxes.

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