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Year End Tax Advice for Real Estate Professionals

Written by Posted On Wednesday, 09 December 2015 10:00
2016 Tax Guide for Realtors 2016 Tax Guide for Realtors

It's December, and while everyone is thinking of the holidays, there is another subject waiting after the first of the New Year.

TAX TIME!

Real estate professionals have some unique challenges when it comes to tax preparation.  Not the least of which is the fact that they do so much driving.  It can be a real pain to keep records of all that driving.

Unfortunately, if they are faced with an audit, they better have some good records to show the IRS.

Many people will understate their miles driven in the hopes of avoiding a "red flag" to the IRS.  That is sad, and totally unnecessary.  There are simple ways of proving your mileage, and actually some techniques to maximize your mileage.

If you are audited, you are going to need to prove your starting mileage for the year and the ending mileage for the year.  Proof does not mean that you wrote it down in your diary, day-timer or on a piece of paper that you put into your file.  You could have done that an hour before the audit, so it will not be accepted.

Fortunately, there is a simple method of proving your beginning and ending mileage that will only take about 30 minutes.  Sometime during the last week of December or the first week of January, simply go to the automobile dealer or a fast oil changer location and have your oil changed.  An employee there will always check your mileage and record in in their records.  When you get the receipt, it will show that mileage on the receipt ... proof positive of the approximate mileage at both the end of one year and the beginning of the next.  Problem solved.  Furthermore, the cost of the oil change is a partial tax deduction, based upon the percentage of business miles driven compared to total miles driven.

When I do seminars on the topic, I am often asked, what is the difference about a few dollars in tax deductions?  

You should understand how much money you can save by knowing what expenses are deductible and keeping good records to support those deductions. When you are an employee, your employer will deduct 7.65% of your wages for Social Security and Medicare (FICA), with the employer paying another 7.65% on your behalf.  Once you are self employed, you are now paying the entire tab of 15.3% (Self-employment tax) of your net business income.

As an illustration, we will assume that you are married, filing a joint return and all of your income is business income reported on Schedule C.  Your net taxable income in excess of $75,300.00, but below $151,900.00, will be taxed at a 25% tax rate.  When you add the 15.3% Self-employment tax, and you are now paying in excess of 40% in taxes on your income.  Depending on which state you reside in, you could be paying up to another 10% in state taxes.

That means that for every dollar that you earn, you are paying 40 - 50 cents in taxes.  To put it another way, for every dollar you deduct, you are saving 40 - 50 cents in taxes that you can spend yourself.

I ask you two questions:

        1. Would you like to pay less in income taxes?

        2. Would you like to spend less time keeping tax records?

        3. Do you think that you can do a better job spending your money than the government does?

If you answered yes to any or all of these questions (most people answer "YES" to all of them), then you may want to invest in my new book entitled "The 2016 Realtors Tax Guide, Diary and Journal - Audit Proof Your Tax Return"  It is available through Amazon at http://tinyurl.com/2016RETax

If you follow the guide, you will be able to save hundreds or even thousands of dollars in taxes, and cut down on your record keeping time.

 

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Ken Koenen, LLM

Tax and Real estate Attorney Licensed in California and Arizona.  Also a licensed Real Estate Broker in California and author of "The 2016 Realtors Tax Guide, Diary and Journal - Audit Proof Your Tax Return" and  "The 2016 Tax Guide, Diary and Journal for the Self Employed - Audit Proof Your Tax Return"

www.lawken.com

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