5 SIMPLE ways for Real Estate Professionals to Reduce Their Income Tax Bill

1. Incorporate Your Business

Why – Incorporating can significantly lower your self-employment taxes while also providing legal protection in the even of a lawsuit (and in this industry it’s only a matter of time before you get sued).

How – Talk with an attorney or an accountant (like us) who can help you file all the necessary documents including notifying your broker and local real estate commissioner.

2. Deduct Vehicle Expenses

Why – Every time you drive your vehicle for business purposes it is an opportunity to lower your tax bill – and let’s face it… in this industry you will drive…A LOT! In 2022, the standard mileage rate is 58.5 cents per mile. If you drive 10,000 miles that will give you a $5,580 deduction! Alternatively, you could also deduct a percentage of the actual vehicle expense like gas, insurance, repairs based on the business vs. personal use of the vehicle.

How – Use an app or spreadsheet to track your business miles and vehicle expenses. Some apps we recommend are Taxbot, MileIQ and TripLog. You can also use the mileage tracker inside QuickBooks Online if you are already using that software.

3. Write-Off Lager Purchases

Why – Most large business expense like cell phones, iPads, laptops, printers, etc. can be fully deducted in the year of purchase. You may also be able to gain a significant tax benefit from buying or leasing a vehicle either personally or in your business. IRS rules have made it possible to deduct 100% of the purchase price of certain vehicles – purchasing the right one can make a big difference in your tax planning.

How – Contact your accountant prior to buying or leasing your next vehicle to ensure you maximize this tax strategy.

4. Open A Qualified Retirement Account

Why – Every dollar you contribute to an Individual Retirement Account (IRA), Self-Employed IRA (SEP-IRA), and Roth IRA gets subtracted from your gross income cutting your immediate tax bill. Plus, your earnings grow tax free until you pull the money out in retirement when your income and tax liabilities are likely to be lower.

How – Talk with your financial advisor about setting up the appropriate account and make sure they coordinate with your accountant to maximize your contributions.

5. Deduct Business-Related Meals and Business Travel Expenses

Why – If you can show the primary purpose of your meal or travel was business related you may be able to write-off 100% of the associate costs! Thus, reducing your taxable income. Meals, airfare, hotels, open house snacks, etc. can all be used to keep more of your hard-earned income in your pocket! But you must be diligent with your documentation on these types of expenses.

How – Record everything you purchase and make sure you include the all details like the date, person you dined with, location, reason for your travel, etc… We recommend you take photos of all receipts and digitally store them to make tax season easier!

As always, follow ZanderFi for more tax saving tips, and tag a business owner who needs to see this post!