Tax Saving Strategies for Real Estate Agents in 2017
Explore effective tax-saving techniques for real estate agents in the 2017 tax year, including insights on income fluctuation, tax planning, S-Corp setups, deductions, and expenses. Learn how to optimize tax efficiency and reduce liabilities through strategic financial planning and entity structuring.
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How to save on TAXES Real Estate Agents 2017 Tax Year
1 INTRODUCTION 2 THE REAL ESTATE INDUSTRY 3 TAX PLANNING 4 S-CORP 5 DEDUCTIONS / EXPENSES
Introduction B.J. Cottrell Jr., EA, CAA Partner Cottrell Tax & Accounting, LLC Founder Tax Training & Tutorials, LLC Affiliate Member of NABOR Previously on Budget & Finance Committee Currently on Global Committee Enrolled Agent (EA) - Licensed by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS), including examination, collection and appeals functions. Certified Acceptance Agent (CAA) Authorized by the IRS to authenticate passports for foreign Individual Taxpayer Identification Number (ITIN) applications. Needed for all FIRPTA transactions.
The Real Estate Industry The Real Estate industry is unique in two major ways. Unique 2 Ways One your income can drastically change from year to year. Two you get paid with a 1099, subjecting your net income to 15.3 % self-employment tax, on top of your income tax bracket. Income Tax Income Fluctuation 1099 SE Tax Large Closing Economy Personal Life 12/31 vs. 01/01 Additional 15.3% Self Employment Tax on all Net Income Total Tax
Income Fluctuation We attack the income fluctuation with TAX PLANNING. We meet with every one of our realtors in late October / early November to review their income and expenses for the year. This is a free service we provide for all of our realtor clients. Dollars We do it at the end of the year so we have accurate numbers for most of the year and can more accurately project the last few months. Then we have time to make changes: adjust payroll make estimated tax payments suggest extra expenses make large purchases setup and contribute to retirement and many more If you wait until the year is over, it s too late.
1099 1099 & Self Employment Tax We deal with this by setting up an S-Corp. This allows us to limit the amount of self- employment you have to pay each year. We are able to do this by paying some of your net income through payroll (subjected to SE tax) and the rest in distributions not subjected to SE tax. This way you wear two hats: Owner K1 not subjected to SE tax Worker subjected to payroll tax (W-2) Owner Worker
S-Corp PA LLC PL / PLLC STATE Florida Department of Regulations Corporation S-Corp Single Member LLC Partnership S-Corp Single Member LLC Partnership S-Corp FEDERAL IRS -Tax Return We suggest that a Real Estate Agent be either a Single Member LLC or an S-Corp for tax purposes. Therefore, the LLC, PL, or PLLC is the best option, because it allows you to be either a Single Member LLC or an S-Corp. NOTE: an election is needed for any of the entities to be taxed as an S-Corp.
S-Corp How it Works Need to Set Up Company With State of Florida Need to Change Your RE License Form # DBPR RE 16 S-Corp Election Separate Bank Account and Records Separate Tax Return (1120S) K1 flows to individual return Payroll For All Workers Fair and Reasonable Salary
S-Corp S-Corp vs. Individual (1040) S-Corp 1040 Total Income Total Expenses Net Profit Before Salary Salary $ 150,000 $ 50,000 $ 100,000 $ 50,000 $ 150,000 $ 50,000 $ 100,000 $ - Taxes Income Self Employment Tax FICA Employment Taxes Florida Unemployment Federal Unemployment Same Same $ - $ 7,650 $ 216 $ 42 $ 15,300 $ - $ - $ - Cost Annual Filing Tax Return Preparation Payroll Preparation $ 150 $ 750 $ 775 $ - $ 300 $ - Total Taxes and Cost $ 9,583 $ 15,600 S-Corp Tax Savings $ 6,017
Deductions / Expenses Retirement Planning 2017 Individual (1040) & S-Corp (1120S) Traditional or Roth IRA - $5,500 ($6,500 > 50) Simple IRA $12,500 ($15,500 > 50) SEP 25% of compensation / Max $54,000 S-Corp (1120S) ONLY Solo 401(k) Elective Deferral $18,000 ($24,000 > 50) (W-2) 25% of Compensation Max $54,000
Deductions / Expenses - Accounting & Tax Prep - Advertising - Newspapers - General Magazine - Proprietary Magazines - Radio - TV - Billboard - Internet - Internet Design Work - Home page, access, email fees - Giveaway Items - Business Cards - Signs - Flyers - Direct Mail - Telemarketing - 1-800 Number - Web Site Maintenance Fee - Advertising - Other
Deductions / Expenses Automobile Mileage Need to keep a log of all miles IRS has accepted a 3 month average in certain cases Make sure to get service done on your automobile at the beginning of every year so you have a starting and ending mileage _____ Total Business Miles (Standard rate 2017 = $0.53.5 per mile) _____ Total Miles Actual Automobile Expenses Includes Fuel Repairs Oil Changes, tires, other repairs Insurance Vehicle registration, license Vehicle lease or rental fees
Deductions / Expenses Bank Charges Charitable Contributions (Deductible on Personal Return) Clothes / Uniforms - Uniforms only ! Copies Credit Reports Computer Expenses Customer Gifts - $25 per person ($50 per couple) Contract Labor - Technology Support - Coach
Deductions / Expenses Continuing Education Books Newsletters Tapes / CDs Seminars Magazine Subscriptions Equipment Copier Fax Computer Cell Phone Interest / Finance Charges Home Office NEW Simplified Option ($15 p/sf -- $1,500 Max) Can not take if S-Corp Dues MLS NABOR Board of Realtors Other Insurance E&O Insurance Health Property - Office
Deductions / Expenses Legal Rent Office Meals & Entertainment (50% deduction) Repairs & Maintenance Office Janitorial & Cleaning Computers Copier SUPRA Keys Office Supplies Paper Ink & Cartridges Photography Postage/Freight/Delivery Printing (Non-advertising) Professional Fees Payroll Expenses Staff (Gross Pay) Telecommunications Phone Line Cell Phone Answering Service Internet Line
Deductions / Expenses Utilities Office Travel & Entertainment & Lodging Airfare Bus & Subway Bridge & Highway Tolls Car Rental Laundry Lodging (do not combine with meals) Meals (do not combine with lodging) Parking Taxi Telephone & Fax Charges Train Other Selling Expenses - Staging Taxes Payroll (FICA) Payroll (FUTA) Payroll (SUTA) Property Taxes - Office Annual Report
Deductions / Expenses Hire your children. If you need help in your business, consider hiring your children. The wages you pay will be deductible by you and taxable to your children in their presumably lower tax brackets. Wages paid to your children under age 18 are not subject to payroll taxes unless you operate a corporation. Hire your spouse. You can write off more expenses like cell phone, his or her computer, and more. Also, if your spouse accompanies you on a business trip for a valid business purposes, you can deduct his or her expenses along with your own. You may be able to set up retirement plans as well for your spouse.
Thank You! BJ Cottrell, EA, CAA Cottrell Tax & Accounting, LLC 5147 Castello Drive | Naples, FL 34103 ph: 239.449.4881 | fax: 239.591.2359 bjc@cottrelltax.com
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