Let’s talk turkey here. Tax season doesn’t sneak up on those who prepare. For real estate agents, where every dollar counts toward building long-term wealth, waiting until April to get organized can mean missed deductions, higher tax bills and unnecessary stress.
Proactive planning, fueled by accurate and up-to-date bookkeeping, is an easy financial move that agents can make. As a tax preparer for more than 40 years, here are the three year-end tax planning tips I recommend that real estate agents do this fall to set themselves up for success before the next tax season arrives.
Year-end tax planning has 3 main components
- What is your taxable income projected through the end of the year?
- Have you taken all of your allowable deductions?
- Can your accountant help you maximize the old and employ new deductions to use before the end of the year?
What is your taxable income projected through the end of the year?
As a tax preparer, I ask my clients to give me access to view their books in October or November. I compare the results to those of the prior year’s taxes and then contact my client for a brief brainstorming meeting. We would discuss projections of future sales and when the commissions would hit. I could then forecast taxes for the current year.
Have you taken all of your allowable deductions?
The easiest way to maintain accurate records and ensure that all of your allowable expenses are included in your tax return is to utilize the services of a bookkeeper. However, many prefer to save money and do more of this work themselves. Below are a couple of ways to do this.
DIY method
You can accomplish a lot of this on your own. Additionally, it’s beneficial to start out doing it yourself; you can learn a great deal about your financial life in the process. If you want to start in DIY mode, sign up for an online subscription to QuickBooks.
You can hire the online QuickBooks bookkeeper to set up your chart of accounts (the list of income and expenses you can use to categorize everything. Then simply download your business checking and business credit card.
Lastly, using your chart of accounts, assign categories to your income and expenses. Then, return to your QuickBooks bookkeeper, and have them reconcile your checking account and credit card accounts.
Team method
If you are really busy working on your business, you may not have time for the DIY method. This is why we suggest a bookkeeper. You can hire the bookkeeper to download everything, pay your bills and reconcile your books.
Alternatively, consider delegating some of these tasks to your bookkeeper and retaining others for your own use. You should also set a specific date each month to complete the books, allowing you to review your financial statements with your bookkeeper.
Essential deduction categories
When setting up your chart of accounts, ensure that you include any expenses relevant to you from the list below.
Tax tip: The net income you generate from your LLC or Sole Proprietorship is all subject to self-employment tax. Some of the expenses below may seem tedious, but consider this: Every $100 in additional expenses saves $15 in self-employment tax. Additionally, this will also save you income tax.
Automobile expenses: Track the business use of your vehicle. Deductible expenses include:
- Auto lease or auto loan payment
- Parking fees and tolls
- Maintenance and insurance costs
- Fuel expenses
Tip: Use digital mileage logs or apps to record your trips accurately.
Home office expenses
If you qualify for a home office deduction, carefully calculate the percentage of your home used for business purposes. This deduction may include:
Some of these expenses may seem personal, but if you use your home as your office, you can deduct a portion of your home office expenses against your business income.
- Mortgage interest and property tax
- Property insurance
- Cleaning, security and maintenance costs
- Depreciation of the home office space
Office equipment and supplies
Maintain invoices and receipts for equipment and supplies used in your operations.
- This includes office furniture
- Office chair
- Computers and iPads
Regular business operating expenses
Include expenditures related to:
- Advertising and marketing
- Property staging and preparation
- Hiring external contractors
- Communication services (internet, phone) and utilities
- Meals and entertainment while marketing new prospects
Best practices in recordkeeping
- Digital solutions: Leverage accounting software (such as QuickBooks) or specialized expense tracking tools (like Expensify) to automate and store your records securely. Consider hiring a professional bookkeeper. For ease of tax preparation, provide access to these tools to your tax preparer. That will form countless questions as your tax return is being prepared.
- Retention protocols: Retain receipts, credit card statements and invoices for each expense. Maintaining contemporaneous records is crucial for substantiating your claims should the IRS request additional evidence.
Can your accountant help you maximize the old and employ new deductions to use before the end of the year?
A solid set of financial records helps your accountant maximize the old and employ new deductions to your benefit.
Some examples of how this can work:
- I recall that one year, a client experienced an increase in truck lease payments compared to the prior year. The bookkeeper took 12 payments as a lease deduction. This was not incorrect, but after I investigated further, I was able to deduct the entire lease cost of over $50,000 for that year. This increased the client’s deduction from $10,000 to $50,000. As you can imagine, it saved my client a ton of tax.
- Another client had a huge tax year. She needed some tax planning fast. And it was mid-December. She had a great team of trusted advisors, including a wonderful financial advisor. She set up a Solo 401(k) for herself and her husband. They were able to invest over $120,000 in their 401(k) s and save taxes on $120,000.
None of these options would have been available to my clients if they had not known their approximate taxable income by October or November. They knew this because they had good bookkeeping, and they gave me some time to develop new ways to set up the infrastructure and make payments to save massive amounts of tax before the end of the year.
The return on investment they received far outweighed the bill they paid.
The value of good recordkeeping cannot be overstated. Although it may seem tedious, disciplined and systematic documentation is the cornerstone of a sound tax strategy
Accurate reports of expenses free your accountant’s mind from chasing down mundane details about your data to having some time to think outside the box and possibly see other options to reduce your tax, not only ensuring that your tax returns are accurate but also that you can fully leverage available deductions.
For real estate professionals, robust tax planning is more than just a year-end task — it’s an ongoing process that can significantly impact your bottom line. By maintaining organized financial records and strategically documenting your professional activities, you can unlock a range of deductions, defer taxable gains and reduce taxes.
Don’t wait until December to scramble on these year-end tax planning tips for real estate agents. Start today, and give yourself the clarity and control to keep more of what you work so hard to earn.
Maeda Palius has been a practicing CPA for 40 years, focused on helping small and medium enterprises. Connect with her on LinkedIn.
