As the dreaded tax filing deadline comes ever closer, real estate agents find themselves in a familiar position: how to pay as little tax as possible to Uncle Sam while staying off the radar of the ever-watchful IRS.
We decided to make a list of seven tax mistakes that real estate professionals may accidentally make so that you’ll be able to avoid them when it’s time to do your own taxes!
Forgetting little (deductible) expenses
It takes a lot of discipline to keep track of the variety of business expenses you make during the year, especially if many are insignificant in amount. But small things add up over a year’s time. Before you know it, you could miss out on hundreds of dollars of tax deductible expenses. Try keeping a running log of your expenses so you don’t forget about any of those little expenses.
Inconsistent mileage deductions
For a lot of real estate agents, mileage deductions make for a sizeable tax deduction. In 2016 you’ll be able to deduct 54 cents for every mile you drove your vehicle for work. To take full advantage of this generous deduction, make sure you document all the trips you made including date and reason for the visit. Unfortunately, driving to and from the office is not included. But driving clients around to see homes is!
Going overboard with the home office
It’s something of an urban legend that putting your home office as a deductible expense immediately raises a red flag with the IRS. That being said, the rules for deducting home office expenses are strict and it’s very easy to mess up. If you are not using your home office ‘exclusively and regularly’ as your principal place of business then you are far better off leaving this expense off your tax filing.
Not deducting commission advances
Fees on commission advances from eCommission are fully tax deductible, so don’t forget about them when you file your taxes. Clients of eCommission receive a free annual summary of every commission advance fee to help them with filing taxes.
A lot of people will get into trouble with the IRS just because they are….late. The deadline this year is April 18 because April 15 falls on a Saturday. You can always ask the IRS for a delay, but you better anticipate filing for it before, not after the deadline. And you are still on the hook for making an estimate tax payment by April 18 based on your best guess of taxes owed.
If you are not good with math and filing your taxes on paper, we recommend having somebody go over the numbers again. Tax software and/or accountants who juggle the numbers for you are a great alternative. In 2015 the IRS caught 1,679,367 math errors in income tax returns. If the math error caused you to pay less tax than you owed, the IRS is likely to ask that you pay up the additional amount of taxes owed plus interest.
Not correcting a mistake
You sent in your taxes and a couple of weeks later you realize you made a mistake. Sounds familiar, right? But what do you do next? What you should NOT do is let it pass and hope that this one will fall between the cracks. The IRS has a dedicated form 1040X that you can submit to fix your error.
None of the advice above is meant to be construed as tax advice. Your accountant or tax consultant is the best person to give advice on how to avoid errors on your tax return.