By Lord Breakspeare Callaghan LLC

The following are the most common tax deductions you are entitled to take on your tax return:

Business use of your car: This will probably be one of the largest deductions you can take. There are two methods available to compute your deduction and you will use the one which gives you the higher amount:

Actual method cost: You may deduct the actual expenses of operating your car for business purposes. This includes gas, tolls, insurance, parking, repairs, maintenance, registration, depreciation and loan interest.

Standard mileage method: The standard mileage rate for business miles driven in 2016 is 54 cents per mile. For example: If you drove 10,000 business miles in 2016 you will be able to get a $5,400 deduction. You can also deduct tolls, parking fees, and loan interest paid on your car.

Health insurance premiums: If you are a self-employed taxpayer, like most realtors are, unless you’ve incorporated your business, you can take a deduction for the health insurance premiums you pay for yourself and your family members.

Commissions paid to third parties: If you pay commission to your brokerage, marketing team, other real estate agents or third parties, you can deduct the full amount paid.

Marketing expenses: Business cards, website fees, MLS dues, signs, sponsorships, promotional items, etc… can be deducted.

Continuing education: Amounts you pay for classes, seminars, conferences you attend to maintain your ability to be an agent or to increase your skills is deductible.

Travel, meals and entertainment: Travel to business events is fully deductible. On the other hand, meals and entertainment expenses are 50% deductible unless you are incurring these types of expenses for a company event or an open house you are sponsoring. In this case meals and entertainment are 100% deductible.

Home office deduction: If you use a portion of your home for business, you may be entitled to deduct home-office expenses that allow you to write off the business portion of your home rent, mortgage, taxes, utilities, insurance, repairs etc, based on the square footage of your office ratioed to the home square footage.

Depreciation: You may be able to fully deduct in the current year the cost of computers, laptops, digital cameras, office furniture, GPS, video camera, scanners, and other equipment used on your daily activity as a real estate agent.

Professional fees: Associations or professional fees payable to NAR, NAIREB, NAREB, NAEBA, CREA, Chamber of Commerce, business licenses, are fully deductible.

Communication expenses: Cell phone service, fax, eFax, internet service, office telephone/VOIP, interactive voice response (IVR), toll free number expenses can also be deducted.

Tax preparation fees: If you choose to outsource the preparation of your tax return to a professional who is on top of the rules and regulations, you can deduct the tax preparation fees paid to the professional.

It is extremely important to keep adequate records for all the expenses incurred to be able to substantiate the business purpose of the expenses in case the IRS chooses to examine your tax return.  You should setup a separate business account and use it strictly for business. Besides reducing legal liability, keeping your business finances separate from your personal makes recordkeeping easier and for sure will lower your tax preparation fees as the professional will not have to spend a lot of time trying to figure out which expenses are related to your business and which ones related to your personal activities.

The following tax planning techniques can be implemented in order for you to reduce your tax liability:

Open or fund a retirement plan: Contributions made to a retirement plan can reduce your tax bill significantly and build a nest egg for your retirement. If you would like to explore the different types of retirement plans available, let us know and we will setup a meeting with a qualified financial planner that we work closely with to analyze your overall situation and recommend the best option for you and your family.

Hire your spouse: If your spouse is spending considerable time in your office, you can hire her/him as an employee. Multiple benefits can arise from this decision:

Social security history: Your spouse will receive Social Security credits toward retirement. Social Security and Medicare paid by the company on the spouse’s behalf is a deduction for the company.

Retirement benefits: Your spouse can receive retirement benefits. The contributions to the retirement plan made by your company are tax deductible.

Health insurance: It will probably be cheaper to cover your spouse as an employee rather than as a dependent under your coverage as an employee/owner. The health insurance premium paid for your spouse is tax deductible.

Hire your children: If you need help in your business, also consider hiring your children. The wages you pay to them will be deductible by your business and your children most like will be subject to a lower tax rate or no tax at all on the wages earned. For example: If you were in the 35% tax bracket, you paid your teen $10,000 to do filing or other odd jobs in the office, you will be able to reduce your tax bill by $3,500. If you still claim your child as a dependent the first $6,300 earned by your dependent child will not be subject to tax. On the other hand, if you do not get any benefit for claiming your child as a dependent, the first $10,350 earned will not be subject to tax.

We look forward to continue sending you useful information that can benefit your foreign and domestic clients.  If you have any specific questions or subjects that you would like us to address, please send us an e-mail to BusinessRelations@lbcpa.com. 

It will be a pleasure to assist you with your current and future clients’ tax matters regarding their Real Estate investments in the United States. Our firm has a network of professionals that include International Tax Attorneys as well as Real Estate and Immigration Attorneys that will assist you and your clients to ensure that the whole process of buying, holding and selling real estate in the United States goes without any unpleasant surprises from the U.S. income and estate tax standpoint.

If you have any questions regarding accounting, domestic taxation, international taxation, IRS representation, U.S. tax implications of Real Estate transactions or financial statements, please give us a call at 305-274-5811.