Tax Deductions for Real Estate Agents | S Corp Tax Write Offs That Save You Thousands

The Bottom LineWhat tax deductions can real estate agents actually take? According to Leland Gross, CFP and enrolled IRS agent and founder of PeaceLink Financial Planning and Accounting, most agents are overpaying by thousands every year not because they’re doing something wrong but because nobody ever showed them what they’re allowed to do. The S corp structure alone can save you 15.3% in self employment tax on your profit above your salary. The QBI deduction gives you 20% off your taxable business income and you don’t have to spend a single dollar to get it. Your home office, mileage, cell phone, and marketing expenses are all deductible. Pull up your 1040 right now and look for the QBI line. If it’s blank or less than 20% of your profit you’re working with the wrong CPA. Tax Deductions for Real Estate Agents: S Corp Tax Write Offs That Save You Thousands April hits and the number shows up on the screen and your stomach drops. You made good money last year. Really good money. And somehow you still owe the IRS more than you thought was possible. You pay it. You move on. And then you do the exact same thing next year. Here’s the thing. That’s not bad luck. That’s a system problem. I incorporated my business six months into my real estate career back in 2002. Got some advice from a guy we used to call Shady Jay and I never looked back. I have never once experienced what most agents go through in April because I set up the structure right from the beginning. Most agents never do that. And it costs them tens of thousands of dollars a year. This week I sat down with Leland Gross, CFP and enrolled agent of the IRS, founder of PeaceLink Financial Planning and Accounting in Virginia Beach. Leland works specifically with real estate professionals across the country and he gets genuinely nerdy about this stuff in the best possible way. Here is what he told me. You Are a Business Owner Whether You Think So or Not This is where most agents go wrong before they even get to the tax conversation. You are a 1099 contractor. The IRS considers you self-employed. That means you are a business owner whether you have ever thought of yourself that way or not. And if you don’t treat your situation like a business owner, you are going to miss out on every advantage the tax code was designed to give you. Leland put it plainly. He had just walked out of a meeting before we recorded where someone was overpaying by $40,000 in taxes purely because they hadn’t set up their business properly. Forty thousand dollars. Just sitting there on the table every single year. The IRS code, and I know this sounds crazy, is actually written to reward you for being self-employed. You can legally avoid taxes. You cannot evade them. Avoiding is legal. The IRS literally built the code to give business owners advantages because self-employed people generate more income and that’s good for the economy. But you have to know the game to play it. Why the S Corp Structure Changes Everything When you are just a straight 1099 filing a Schedule C, everything you earn as profit gets hit with federal tax, state tax if your state has it, and self-employment tax at 15.3%. That last one is the killer. It goes toward Medicare and Social Security and you pay both halves because you are both the employer and the employee. When you incorporate as an S corp, something changes. You split your income into two buckets. Your salary and your profit. You pay yourself a reasonable salary for the work you do and you pay self-employment tax on that amount. The rest of your income comes out as profit distributions and that profit is NOT subject to self-employment tax. Leland walked me through the math. Say you earn $100,000. You set your salary at $40,000. You pay self-employment tax on the $40,000. The other $60,000 comes to you as profit with no self-employment tax. That is 15.3% on $60,000 that you just kept in your pocket. That is $9,180 a year. Just from the structure. The salary has to be reasonable. You cannot pay yourself $5,000 a year and claim you made $200,000 in profit. But reasonable in real estate is often lower than agents think and your CPA can help you find that number. The QBI Deduction: The One You Should Check Right Now Pull up your 1040. The front page. Go to around line 13. It might move slightly by tax year but look for something that says QBI. That stands for Qualified Business Income deduction. And Leland calls it his favorite deduction because it is the only one in the tax code you do not have to spend a single dollar to receive. You get it purely because you are a business owner. Here is how it works. It is 20% of your business profit as a straight deduction. If you made $200,000 in commissions and had $100,000 in deductions so you were getting taxed on $100,000 of profit, your QBI deduction should be $20,000. That comes right off the top after everything else. If that line on your 1040 is blank, you are working with the wrong CPA. If that number is less than 20% of your profit, that means there was no proactive tax planning happening. It is very easy to get to the full 20% with the right structure in place. The fact that it is not there means someone was not doing their job. The Real Estate Agent Tax Write Offs That Actually Work Once you are set up properly, the deductions are where the money really starts to add up. Here is what Leland covers with every real estate client. The obvious ones: MLS fees, licensing costs, marketing expenses, accounting fees, professional development. Every dollar you spend running your

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