Our Real Estate Agent Tax-Cut Library covers every expense an agent can deduct on their tax return. The same rules apply to all small business owners. In the Library, we cover these deductions line-by-line on Schedule C, from Advertising (Line 8) to Wages (Line 26). What’s surprising about this process is how many everyday expenses do not fit into any of these 18 (actually 22, because several deductions contain sub-lines) categories. Not meeting the defining criteria of these twenty-two deductions doesn’t mean your misfit expenses get left in the cold. They get huddled together, and their total gets plunked down on Line 27a, Other Expenses.
Note on Expenses: Before we start to list purchases deductible as Other Expenses, let’s review the definition of deductible business expenses on your tax return. According to the IRS, deductible expenses are both ordinary and necessary for your business. Ordinary expenses are common and accepted in your industry. Necessary expenses are helpful and appropriate under the circumstances. Deductible expenses cannot be extravagant in nature. What does this mean?
Simply put, it means you can show a business reason for each purchase – it helped (or you honestly expected it to help) your business. And you did not spend a ridiculous amount on the assistance. For more information on ordinary and necessary expenses, check out our article Overview of Income and Deductions.
Here is a non-inclusive list of everyday real estate expenses that get deducted as Other Expenses (and some outlays that are not deductible at all).
Bank Fees: Bank fees include general charges to your business checking or savings account, not charges to an account regularly used for business and personal transactions. If you use your personal account for business (which you shouldn’t), fees related to specific business transactions are deductible. Deductible fees include, but are not limited to, service charges, overdraft fees, and ATM charges. Low balance fees, the cost of duplicate checks, and statement copies, and banking fees are also deductible. Loan interest charges on a bank account statement is not an Other Expense. It gets deducted as Interest on line 16 of Schedule C (click to view article).
Cell Phone: Business use of your cell phone is an Other Expense. Be careful, however, if you use your cell for both business and personal calls and data. Please read our article on Cell Phone Use to learn the proper deduction of cell phones.
Charitable Contributions: Donation to charity are NOT deductible on Schedule C unless they are considered a promotional expense, in which case they get deducted as advertising. For more information, please read our article on deducting promotional donations. Charitable donations not deductible as advertising are itemized deductions on Schedule A.
Clothing & Uniforms: The ability to expense clothing on a business tax return is a source of great confusion and misinformation. Countless numbers of professionals such as lawyers, ministers, and real estate agents have attempted to deduct “business attire” on their tax returns. The results have not been promising – these expenses are nearly always denied by the IRS and the US Tax Court. The truth is that – for the average business owner – very little clothing qualifies as a business expense. Deductible clothing is not adequate for everyday public wear. They are also not appropriate for formal events such as weddings.
Safety equipment, such as steel-toed boots, for construction sites, is deductible as an Other Expense. Another exception Real Estate Agents can take advantage of is specific instances in which clothing qualifies as a business uniform. To make your business attire deductible, check our Real Estate Agent Tax Cut Library and our article and our article, Deducting Business Attire.
Continuing Education: Classes and training that make you a more effective Real Estate Agent qualify as Other Expenses on Schedule C, including classes required to keep your license. Elective training on various industry-related topics is also deductible, as are profession-related books, audio, and video programs. However, before taking the deduction, make sure you can show they are necessary and appropriate for your business.
A few words of warning: As we discuss in our article, Are License Training and Exam Fee Deductible? the cost of starting a new profession, such as becoming a Real Estate Agent or Broker, is not deductible as a business expense.
Credit Card Fees: Although this may be an infrequent expense experienced by agents, costs related to accepting customer payment via credit card are deductible as an Other Expense. They are sometimes included with banking fees and deducted as Bank and Credit Card Fees.
Dues and Subscription: Dues paid to organizations that benefit your real estate business are deductible. Deductible memberships include dues paid for local and national Real Estate Boards, the Chamber of Commerce, and Leagues that promote business in your state or town. Network organizations qualify as do memberships in civic organizations such as Rotary, so long as your primary reason for joining is to promote and generate business.
Be careful when joining organizations that exist, even in part, to provide entertainment and recreation to members. Dues paid to such organizations are not business expenses. Such organizations include golf and country clubs, tennis and other sporting memberships, facilities such as pools and gyms, boating and hunting clubs, and other recreational organizations.
Subscriptions to printed or online publications are also deductible if they qualify as ordinary and necessary business expenses. Some examples include trade journals, professional magazines, and sales-related publications. Magazines that may also promote properties, such as décor or photography publications, may also be deductible. Just be sure you can show that they benefit your business!
Gifts: Promotional items such as free pens, etc. get expensed as promotional advertising. Client gifts and thanks you’s can get deducted as an Other Expense. Be careful, however, when expensing gifts to clients. The value of each gift is limited, and the manner of presentation influences deductibility. The cost of gifts is limited to $25 per individual. Those valued above $25 are not deductible unless they get reported as income to the recipient. If you do not want to forgo the deduction or force your clients to report the income, consider having such gifts listed on the HUD as a subtraction from your commission. Doing so will make the gift more like a discount on your fees, even if listed to the buyer’s side of the HUD. This tactic may not eliminate the deductibility issue, but (in my non-tax-advice opinion) will go a long to make it a moot point. To learn more about deducting promotional items and gifts, read our article, Deducting Promotional Items, and Gifts.
Internet: A Real Estate Agent can deduct their home’s internet cost if they use it for business, regardless of whether they have a home office. The deduction is equal to the percentage of use the agent can reasonably argue (prove) is for business. The keyword here is reasonable. For agents who work from home and do not use the internet for personal email, streaming services, or social media, the percentage may be pretty high - say 90%. However, suppose you’re like most owners who work from home. In that case, you probably use the same internet connection for a variety of personal uses. The proportion of the total cost that is personal will increase. If you stream TV, use Alexa, and have a family that utilizes the connection on phones and devices, your reasonable percentage will be much lower, as low as 10% or so.
Listing Fees: Payment and annual fees to present and update your properties on platforms utilized by other real estate agents are deductible as an Other Expense. Such expenditures include yearly payments to a Multi-Listing Service as well as fees to add properties. Be careful not to confuse listing fees with the cost of promoting properties on sites that share them with the general public, such as Zillow or Realtor.com. Payments to these businesses are advertising expenses.
Lock Boxes and Entry Systems: The purchase price and fees related to a combination or key-based lockboxes that allow entry to listed properties are Other Expenses. The same is true for electronic and other keyless entry systems.
Other Deductible Expenses: The list above does not include every expense failing to fit on your sole proprietor tax return neatly. Remember, if such a cost is ordinary (accepted in your industry) and necessary (helpful) for your business, it is deductible. If it doesn’t meet the description of another line item, deduct it as an Other Expense!
Summary and Invite: We hope this article advances your understanding of Other Expenses deducted by self-employed Real Estate Agents. If you’d like some assistance cutting an agent’s highest cost - taxes, download our FREE Real Estate Agent Tax Organizer.
If you’re extra-serious about minimizing taxes, check out our Real Estate Agent Tax-Cut Library. It contains over eight hours of tax-cutting information broken into twenty-nine searchable volumes. It’s also tax-deductible and pays for itself with the deductions you will find. Want to share your tax-cut with the whole agency? Check out our Broker Version of the Library.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
Great course!- Donna L, Phoeniz, AZ, 1099-NEC & 1099-MISC Training Course Course
This course package is thorough and will give you a solid handle on how to optimize your business expenses to minimize your taxes and keep appropriate records to handle any IRS challenges. Only want to dive into a particular topic? Jump to that video and scan forward to where your issue is addressed. Or watch the whole series to learn it all!- Josh, Charles Town, WV, Real Estate Agent Tax-Cut Library, Agent Edition Course
I took the course last weekend and it was excellent. I’ve also had a couple of e-mail exchanges with Brett to clarify a few things, which I really appreciated. I found the class to be very easy to understand. I do have a finance background, but I think it would be comprehensible to people who don’t. I will recommend that the next Treasurer of our HOA take the course when he/she takes over.- Nancy S, Glenview, IL, 1120-H Basics Course
The course was excruciatingly detailed, which I appreciate. I definitely recommend this course to anyone who even thinks they may need it.- Greg, Brookfield, IL, 1099-MISC Basics (Training Edition) Course
The course was excruciatingly detailed, which I appreciate. I definitely recommend this course to anyone who even thinks they may need it.- Greg, Brookfield, IL, 1099-MISC Basics Course
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