Many real estate professionals are paid exclusively by 1099, or a combination of 1099 and W2.   Since there are accompanying high expenses of the profession, there is a lot opportunity to use financial and tax planning to reduce your tax bill.

 

Below are some important tax topics to be aware of as a Real Estate Professional:

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A.  Qualified Business Deduction (QBI):  In early 2019, the IRS confirmed real estate agents and           brokers qualify for the QBI deduction.  This is especially important if individuals make over             $157,500 for single filers and $315,000 for those filing joint returns.

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B.  LLC or S-Corp:  The number one question real estate agents come to Lifestyle Tax and                     Financial with is whether to form a LLC or an S-Corporation.  The answer is dependent on              many variables, and therefore the result is not the same for everyone. Questions                              and comments when determining the right business structure for you:

1.  What is your projected income for the current year and the foreseeable future?  How             confident are you in these projections, and the potential swings from year to year?

2.  What is your typical mix of W2 income to 1099 income?

3.  Does your state or city levy taxes on the entity level?  Example:  New York City levies the       Unincorporated Business Tax (UBT) and General Corporation Tax (GCT).

4.  You need to consider the tax profile of your spouse, if filing jointly.

5.  When forming an S-Corp, you may need to hire a payroll company to pay yourself on a           W-2.  This is an additional cost, and will also reduce the QBI deduction.

6.  How much you would like to put into retirement accounts (SEP, 401k, etc.) should also be       considered.

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These are just some of the moving parts when deciding which business entity is the most tax efficient.  Tax simulations at different income levels can be run to calculate the tax rates of the different business entities.

 

Below is a Real Estate Broker expense checklist:

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- Commissions and fees paid

- Business travel

- Advertising and marketing

- Computers and software

- Home offices

- Licenses and memberships

- Health insurance for self employed

- Office rent and utilities

- Professional and legal services

- Training and education

- Self employed pensions and other retirement accounts

- Accountants, bookkeepers, and assistants

- Conventions and seminars

- Meals and open house expenses

- Office expenses

- Client gifts

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