Tax Tips Every REALTOR® Should Know
Posted on February 4, 2014 by Bethany Brannan
Being that it’s only February, April 15 seems like a long way away. But, it’ll be here before you know it. AAR interviewed Scottsdale CPA and “tax goddess” Shauna Wekherlien to get some tips for making sure your taxes are filed as smoothly as possible.
Tip No. 1: Get Organized
According to Wekherlien, one of the best investments that REALTORS® can make is in accounting software like QuickBooks. “Clients are used to reporting profit and loss, but forget about big purchases and small charges,” said Wekherlien. Using a program like QuickBooks will keep all your charges categorized and print out a nice report that you can take to your CPA. “If you’re bringing five or six boxes of receipts to your CPA, it will cost you more money in the long run.”
Another tip that Wekherlien suggests is using a separate credit card and bank account for all business transactions. “When all your charges are in one place, it’s much easier to reconcile your accounts.”
Tip No. 2: Know What is “Ordinary and Necessary”
When deciding if an item is a true business expenses, ask yourself, “is this ordinary and necessary” for me to make money. Wekherlien gives this example: “You may not be able to deduct your high-end, designer suits as a business expense — because you can, technically, do business without them. But, it might be possible to deduct dry cleaning or even a nail appointment here and there. Your CPA will be able to help you make the determination.
Tip No. 3: Know What’s Changed for 2013
In 2013, there are a few changes that will directly affect some REALTORS®. The first pertains to the Affordable Care Act. According to Wekherlien, single agents that make $200K or more will pay approximately 4.7 percent more taxes and can also expect to lose some deductions. Another change in 2013 is that Capital Gains tax has increased from 15 percent to 20 percent.
Mileage is one of the biggest deductions of which REALTORS® can take advantage of. The mileage reimbursement rose to 56.5 cents a mile for 2013. Wekherlien strongly recommends using an app to track your mileage. “Using a mileage app like MileTracker or MileBug will make it so much easier to report your mileage,” said Wekherlien.
“In the past,” said Wekherlien, “the home office deduction was much more complicated to deduct, more records to keep, and harder to really take as a write-off. That isn’t the case anymore and in 2013, the IRS came up with a simple calculation for home office deductions.” For every square foot of home office space, a REALTOR® can deduct $5. (Example: 150 square foot office = $750 deduction). If REALTORS® would prefer to take the traditional deduction (a percentage of the home’s total square feet,) that option is still available.
Tip No. 4: Get Professional Help
Hire a CPA that specializes in real estate. At first, this advice seemed a bit off, but Wekherlien said, “They’ll know your industry. They know the types of expenses you should and should not have.” Another surprising fact about CPAs who work with REALTORS® said Wekherlien, ”using a CPA who knows REALTORS® can actually boost your business. We’ve got connections to other REALTORS® or affiliates in your industry. It’s not uncommon for me to connect two of my clients in a way that generates business for them both.”
Shauna Wekherlien has been a CPA since 2001. Her company, Tax Goddess Business Services, PC, is located in Scottsdale, Arizona.