Jake Snelson - Vyde

How to Track and Separate Business and Personal Expenses as a Realtor or Real Estate Agent

As a real estate agent or realtor, it's easy to get your person and business finances tangled up. Keeping your finances separate will make it easier to find deductions during tax season, grow your business and stay organized.

Here are 6 ways to keep your personal and business finances separate as a real estate agent or realtor:

Set up separate bank accounts.
If you haven’t done this yet, it’s never too late. Set up a business account then, when tax time comes, you’ll only have to review one account for deductions and expenses. It may be hard to differentiate between business and personal purchases made through your personal account. This can be especially difficult months after the fact. Not only is having separate accounts tax smart, it improves overall organization of your business life.
Get a business credit card.
Much like a separate bank account, a business credit card provides records of purchases. If you were to be audited you will have proof of business purchases. You shouldn’t maintain a balance on your business credit card. However, if you do, the interest rate is deductible as a business expense. Building up a line of credit for your real estate business that is separate from your personal credit is an added benefit.
Keep meticulous track of shared expenses.
If you’re working from your car or home office, as many realtors and real estate agents do, you might have an overlap in expenses. For example, you can claim a home office, a portion of your mortgage payment, electric bill, or other utilities as tax deductions. You can also claim your cell phone bill as a tax deduction. While it might be better financially to have a separate business phone, it’s not always feasible for a real estate agent. In instances like these, keep all bills and receipts and be diligent in tracking these overlapping expenses. Highlight business expenses on your receipts or separate portions of transactions onto two separate debit cards. Keeping track along the way will help you get the most bang for your buck during tax season. You can calculate what percentage of these bills exactly is deductible when you prepare your taxes, but you need a record to go off of.
Understand what is a business expense and what isn’t.
Having separate bank accounts and credit cards for your personal and business expenses makes this step infinitely easier. You may be less tempted to make a business purchase if you have to actually put the item on a business credit card. You may think twice about what qualifies as a “business lunch” or “business travel” as well. Don’t plan to put a business purchase on your personal card and reimburse yourself later. Keep in mind that food and entertainment for business can be deducted at 50% on your taxes, but only if a serious business conversation took place before, during or after the occasion.
Set your salary and stick to it.
If you own your own real estate business and maintain separate business and personal accounts, you’ll need to set yourself a salary to keep things organized. You’ll find it easier to stay on budget if you write yourself a check from your business to your personal account for the same amount each month.
Consult a professional.
If you have questions about what qualifies as a business expense or what portion of a bill for your home office is tax deductible, contact a professional accountant to help you clarify. An accountant will also be able to help you keep your expenses separate and organized all year long.

Maintaining an organized small business bookkeeping system as a real estate agent can save you a lot of time and money during tax season. Keep your business organized and professional by streamlining this process or hiring a professional to help you out.

Interested in Learning More?

Schedule a free consultation with our team!

How to Calculate Self-Employment Taxes for Real Estate Professionals & Agents

Any individual engaged in a trade or business as a sole proprietor, partnership, or part of an LLC must pay self-employment taxes on net earnings. If you’re a real estate professional, you most likely belong in one of these categories and are also subject to this tax.

Self-employment taxes, as referred to by the IRS, include Social Security and Medicare. The term is not all-inclusive and does not include any other taxes that self-employed individuals may be required to file.

Here’s what you need to know:

1. The self-employment tax rate for 2015 is 15.3%.

4% going toward Social Security
9% going toward Medicare
The income limit on this rate is $118,500. If your income as a real estate professional exceeds this amount, you will be required to pay an additional 0.9% in Medicare tax.

2. Deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income.

This means you can subtract ½ of your self-employment tax from your total net earning for the year.
Example: if you owe $3,000 for self-employment tax, you can claim an adjustment of $1,500, which reduces your income tax by $375 if you’re in a 25 percent tax bracket.

3. This is the amount you pay quarterly.

While it may seem like you’re getting taxed in every direction for being your own boss, keep in mind that self-employment taxes are actually the same taxes that are being withheld from a standard employee’s paycheck. You can calculate your own self-employment tax by using a Schedule SE.
If you are operating your real estate business as an individual and have not formed a partnership, you will report your net profit on a Schedule C which can be included on a Form 1040.

These payments should be included in your estimated quarterly tax payments, your small business bookkeeping and paid throughout the year. Federal estimated quarterly tax payment dates are due April 15, June 15, September 15, and January 15 each year.

Other posts that might interest you:

How to Legally Structure a Real Estate Partnership or Agency

How to Track & Separate Business and Personal Expenses as a Realtor or Real Estate Agent

The Top 10 Tax Deductions for Realtors and Real Estate Agents

What You Can and Cannot Deduct for Advertising Your Real Estate Business

Top 4 Tips on Tracking Mileage and Deducting Vehicle Expenses as a Real Estate Agent

6 Ways to Save Time and Money on Bookkeeping and Accounting as a Realtor or Real Estate Agent

How Do I Figure My Estimated Quarterly Taxes? For Realtors, Real Estate Brokers, and Property Managers

How to Develop an Exit Strategy for Your Real Estate Agency Partnership

How to Develop a Succession Plan for Your Real Estate Partnership

Effective Ways: How To Get Out of a Real Estate Partnership

You just formed a real estate partnership. As hard as it is to imagine an ending to your newly formed venture, an exit strategy belongs in every business plan. Adding an exit strategy to your real estate partnership ensures protection for both partners. It will also reinforce that the business venture is a professional relationship, not a personal one.

There are several possible reasons for needing an exit strategy for your real estate partnership.

Here are a few possibilities to consider when developing an exit strategy with your real estate business partner.

Resignation. Your exit strategy should clearly define what happens if one partner decides to resign from the business. How will the partners be compensated if one walks away? What will happen if the business is sold or acquired by someone else?
Disagreement. Fighting and disagreement are one of the most unpleasant ways to dissolve a partnership, yet surprisingly common. If the only solution is to split, then partners should know ahead of time how they will handle things.
Financial Conflict. Differing ideas on how to spend, distribute, or invest money made in a partnership can be a tricky task. Involving an accountant in the development of your exit strategy for your real estate partnership can ensure that business finances run smoothly, even if the partnership dissolves.
Merging or Selling. The exit strategy for your real estate partnership should address how to handle the business if it grows, either through merging or selling.
Buy-out. A good exit strategy includes the possibility of one partner wanting to buy the other partner out. Planning ahead for a buy-out will create a smooth financial transaction.
Death. Details should include what the financial compensation package should be for the surviving family members. You should also decide who will own the deceased partner’s portion of the business. Will the new stakeholder continue in the business? The new stakeholder and surviving partner can decide this later.
Divorce. Your exit strategy should also include guidelines for what happens if one of the real estate partners gets divorced. If you don’t anticipate the possibility of divorce, then you may find yourself with an ex-spouse as a new partner.
Disability. An exit strategy should include clear guidelines about what path the business will take if one partner becomes disabled. This part of the strategy can be the most difficult to develop because while a partner may be disabled—mentally, physically, or even financially—they still have a stake in the business. Disability points to discuss should include transfer of ownership, short and long-term disability payments, and finally, health insurance coverage for the disabled partner and his or her dependents.

Why you absolutely need an exit strategy for your real estate partnership.

A clearly defined exit strategy in a real estate partnership does more than just determine answers for the “what if” questions. It provides peace of mind for both partners. It ensures a fair outcome when the partnership comes to an end. Have your accountant help you draft and/or review your exit strategy for your real estate partnership.

Along with having a plan for exiting your partnership, you should also create a succession plan. Succession planning identifies and develops internal and external individuals to potentially fill key business leadership positions in the future. This makes sure that individuals are prepared for the future and gives peace of mind to all players that a plan is in place. Read more here about succession planning and how a good accountant and virtual bookkeeper can help with this important part of your real estate business.

How Much Should I Set Aside for Taxes as a Real Estate Agent? For Realtors, Real Estate Brokers, and Property Managers

How much should I set aside for taxes as a real estate agent? As a self-employed individuals are required to make estimated quarterly tax payments, a pay-as-you-earn system for federal taxes. Realtors, real estate agents, brokers, and property managers are considered to be self-employed by the IRS and are subject to these payments. If you anticipate, through your small business bookkeeping, that your end of year tax bill to be more than $1,000, you need to make quarterly payments to the IRS.

How to quickly calculate your estimated quarterly tax payment as a realtor, broker or property manager:

Estimate your total commissions and business expenses for the year. If you’re not sure, look back on previous years’ records and make a prediction at what your commission might be and take an average of what your expenses have been in the past. Subtract your business expenses from your predicted commission to determine your net income.
Multiply your net income by the Self Employment Tax Rate. Currently, the self-employment tax rate is at 15.3% (12.4% Social Security + 2.9% Medicare tax). A quick example: if you predict your total commission for the year to be $40,000, multiply that number by .153, which equals $6,120 in self-employment tax due for the entire year.
Divide your self-employment tax amount by two. Using the example in the previous step, take $6,120 divided by 2 and you have $3,060. You are allowed to use half of your self-employment tax as a deduction against your income.
Subtract ½ of your self-employment amount from your net income. In this case, $40,000 minus $3,060 equals $36,940.
Subtract your standard or itemized deduction from your net income from step 4. Estimate your itemized deductions or obtain the standard deduction form from the IRS website. If you estimate $10,000 in deductions, you now have $25,940.
Subtract the personal exemption allowed for the year from the new number in step 5. To see what your personal exemption is, click The amount of personal exemption you’re allowed to claim changes from year to year, so be sure to get the correct number from the IRS website.
Use the most current tax rate table (also found on the IRS website) to calculate the amount of federal tax due on your adjusted gross income (the amount calculated in step 6).
Subtract estimated tax credits from the number calculated in step 7. Be sure to see if you qualify for a child or dependent tax credit.
Add your total estimated federal tax due to the total estimated self employment tax due. Then divide this total by 4.
Make estimated quarterly tax payments of the amount calculated in step 9. Estimated quarterly tax payments are due on April 15, June 15, September 15, and January 18.

Need help filing your estimated quarterly tax payments as a realtor or real estate agent? We can help you out.

Interested in Learning More?

Schedule a free consultation with our team!

Top 4 Tips on Tracking Mileage and Deducting Vehicle Expenses as a Real Estate Agent

If you’re a real estate agent, you’re putting more miles on your vehicle than most other business owners. Constantly traveling to and from your office and home, real estate properties, home showings, listing appointments, and more; it adds up the miles quickly! In order to be in accordance with the IRS regulations when it comes to driving expenses, there are a few things you have to keep track of for your deductions to count.

Tips on Tracking Mileage and Deducting Vehicle Expenses as a Real Estate Agent

Keep a business mileage log. Real estate agents’ routes are unpredictable. Unlike many other business owners, they aren’t simply driving to the office and around town to run errands every day. Some days they are in the car for hours, driving to locations they’ve never been and perhaps will never go to again. The IRS wants to know the total number of miles you drove for your business in a given year. While your commute to and from the office doesn’t count, almost all other business travel does. The best way to have accurate records for the IRS is to keep contemporaneous records—meaning your records are created each day you drive for business or shortly after. While a paper and pencil mileage log works just as well as anything, there are several ways to utilize technology to keep track. Logging the miles on your GPS may provide you with the most accurate record without much maintenance. Apps like Mileage Log+ or Everlance automatically calculate your distances by entering where you’re leaving from and where you’re going. When tax season rolls around, you just export your mileage for the year and hand it over to your account. How easy is that?
No records? No problem. If you haven’t been keeping a mileage log this year, you’re not completely out of luck. While the IRS frowns upon records constructed after the fact, if you can prove you drove to where you said you drove, you can still deduct your mileage. If you maintain a calendar, appointment book, or planner, you can go back through your records and calculate your mileage based on the appointments you attended. While a firsthand record is recommended and the most accurate, you can still deduct miles driven by calculating them this way. However, it is likely less likely to be accurate when looking back through records and trying to remember where you drove.
Calculate the actual expense of your vehicle expenses for business. While this method can be tricky, some real estate agents find that keeping track of all vehicle expenses throughout the year gives them a bigger deduction come tax season. This method requires keeping track of gas, oil changes, tires, repairs, insurance, registration fees, licenses, depreciation, and all other vehicle expenses. At the end of the year, you’ll provide your accountant with all these records to determine how much of a deduction you can take for your car.
Use the Standard Mileage Rate. This method of keeping track of vehicle business expenses is usually the easiest and most effective for a real estate agent. The standard mileage rate generally gives business owners a larger deduction, as long as their car is fairly economical. You still have to track your mileage, but records of other expenses are not quite as critical. Basically, with the Standard Mileage Rate, you are allowed a deduction of 57.5 cents per mile driven in a year. Using this method, you don’t deduct new tires, oil changes, or other expenses—it’s all factored in! If you drove your car 10,000 last year for you real estate agent business, you’re looking at a deduction of $5,750. Cha-ching!

Still have questions about using your car as a real estate agent? Give us a call, we’d love to help you out.

Other posts that might interest you:

How to Legally Structure a Real Estate Partnership or Agency

How to Track & Separate Business and Personal Expenses as a Realtor or Real Estate Agent

The Top 10 Tax Deductions for Realtors and Real Estate Agents

What You Can and Cannot Deduct for Advertising Your Real Estate Business

6 Ways to Save Time and Money on Bookkeeping and Accounting as a Realtor or Real Estate Agent

How to Calculate Self-Employment Taxes for Real Estate Professionals and Agents

How Do I Figure My Estimated Quarterly Taxes? For Realtors, Real Estate Brokers, and Property Managers

How to Develop an Exit Strategy for Your Real Estate Agency Partnership

How to Develop a Succession Plan for Your Real Estate Partnership

How to Legally Structure a Real Estate Partnership or Agency

While entering into a business partnership can be a risk that leaves some feeling unsettled, many real estate professionals find that teaming up and doubling their knowledge, expertise, and experience can increase their income and business success significantly.

The most important thing to consider when partnering with another real estate agent, broker, or property manager is setting clear expectations. Have a plan before you form the partnership, work together to set clear, defined expectations on how the partnership will work, and develop an exit plan for the future.

There are several ways to legally form a real estate partnership. Each state has slightly different rules that govern partnerships, so you’ll want to sit down with an attorney who can help you hammer out the details.

First, let’s take a look at the definition of the word partnership. A partnership occurs when two or more people join together for business purposes. Partnerships are legal entities recognized by the state in which it was formed and can take many forms based on tax purposes. A few common partnerships for real estate agents go as follows:

General Partnership

A common type of business partnership among real estate professionals, a general partnership requires that all partners are equally and jointly liable for any legal actions or debts of the business. Being jointly liable in a general partnership also means that the group can be sued as a whole, rather than one person within the group. Each partner takes equal responsibility for the business dealings—both good and bad.

All partners get equal voting rights, regardless of how much or little one partner invested. All partners are given equal weight in the decision making process of the group.

For tax purposes, a general partnership has one level of taxation (similar to a sole proprietor). Basically, this means that profits are passed through the partnership to the parties involved and are distributed directly to the partners without taxation. Each partner is responsible for including his or her loss on a tax return. General partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of the Schedule K-1 (Form 1065) to the partners by the date required to be filed, including extensions.

While no local or state filings are required to start a general partnership, it is advisable to have a formal agreement in place before business begins.

Limited Partnership

Limited partnerships are common in the real estate business and usually consist of one partner supplying the majority of the capital but not wanting to be involved in the daily operations of the business.

The defining factor of a limited partnership is that it has at least one general partner and at least one limited partner. The general partner has unlimited liability, while the limited partner is personally liable only up to the amount he or she has invested in the business. However, this structure does not give the general partner complete control of the partnership.

Similar to a general partnership, a limited partnership is not treated as a separate taxable entity. Again, profits are distributed among the partners without taxation and the partners are responsible for reporting their income to the IRS in the same way as a general partnership. Usually, limited partnerships require a filing with the Secretary of State’s office before they are formed.

Limited Liability Company (LLC)

The most popular form of a business partnership across any industry is an LLC. However, most real estate professionals choose to form a partnership rather than an LLC for a couple of reasons.

In an LLC, all owners are not personally liable for business debts. Instead, partners may elect to have the company taxes as a corporation or a partnership. Most real estate partners elect to be taxed as a partnership rather than a corporation so that profits are passed directly to partners without further taxation.

All states require paperwork to form an LLC. They can be difficult and expensive to set up, but having clear guidelines in place often saves a lot of time and hassle down the road. There are no restrictions on how many members can be part of an LLC. To see the different forms required for filing taxes as an LLC, visit the IRS website.

Each real estate partnership is different depending on the parties involved, the state where the partnership is formed, and the personal preferences of the partners. A good attorney can help you form your real estate partnership or team with the clearest guidelines and least amount of confusion.

Interested in Learning More?

Schedule a free consultation with our team!

What You Can and Cannot Deduct For Advertising Your Real Estate Business

Realtors and real estate agents rely a great deal on advertising and promotions to build their business and keep it going strong. Almost any kind of advertising is tax deductible for a real estate business, as long as the expenses are ordinary, necessary, and within reason. However, there are some advertising expenses are not tax deductible. Before you start combing through your advertising budget for deductions and talking to your virtual bookkeeper, use this handy checklist to help you keep track of tax deductible advertising expenses.

Basic Tax Deductible Expenses for Small Businesses and Real Estate Agents

Business cards
Brochures
Flyers
Signs for storefront or vehicle
Yellow page advertisements
Internet advertisements
Magazine advertisements
Radio and/or television commercials and advertisements
Website set-up and maintenance
Fees paid to web developers, graphic designers, public relations agencies, and other people or businesses you paid to help you promote your company
Print materials promoting your business
Balloons, decorations, refreshments, and other items used at open houses
Billboards
The cost of staging a home to increase its appeal to buyers (Raylynn, does this make sense? Would you consider this advertising?)

Tax Deductible GoodWill Advertising Ideas

If it relates to your real estate business and you expect to gain in the future, you can deduct “goodwill” or institutional advertising meant to keep your name before the public. Examples of goodwill advertising for realtors include:

Sponsoring a youth sports team such as Little League baseball or soccer
Advertisements (print or online) that encourage people to donate to specific charities
Donating money to local school events or causes
Walking in a parade to promote your business and handing out Frisbees, t-shirts, or other materials with your business’ name on them
Giving away products or samples
Holding contests and giving away prizes

Tax Deductible Promotional Giveaway Items

Structuring giveaways correctly can be tricky, but beneficial for your real estate business. Giveaway items that you use to publicize and promote your business are tax deductible. A few common items realtors give away include:

Pens
T-shirts
Tote bags
Keychains
Mousepads
Magnets
Coffee Cups
Calendars

Advertising Expenses You Can’t Deduct as a Realtor

Permanent signs for your business. Signs that will last less than a year (cardboard signs or banners) can be deducted, but permanent signs are considered a business expense and can be depreciated from year to year, but cannot be deducted as an advertising expense
Advertisements to influence government legislation
“Help Wanted” ads are not considered advertisements, but can be deducted as operating expenses
Time and labor put into the creation of a giveaway and distribution of products
You cannot deduct more than $25 worth of “gifts” per recipient, per year
Expenses that are primarily personal, even if they promote your business. For example, you can invite your best customers to your child’s wedding, but you cannot deduct the cost of the wedding because your clients came

There are thousands more tax deductible real estate business expenses than listed here. Have a question about a deduction for your real estate business? Vyde can help you answer it.

Other posts that might interest you:

How to Legally Structure a Real Estate Partnership or Agency

How to Track & Separate Business and Personal Expenses as a Realtor or Real Estate Agent

The Top 10 Tax Deductions for Realtors and Real Estate Agents

Top 4 Tips on Tracking Mileage and Deducting Vehicle Expenses as a Real Estate Agent

6 Ways to Save Time and Money on Bookkeeping and Accounting as a Realtor or Real Estate Agent

How to Calculate Self-Employment Taxes for Real Estate Professionals and Agents

How Do I Figure My Estimated Quarterly Taxes? For Realtors, Real Estate Brokers, and Property Managers

How to Develop an Exit Strategy for Your Real Estate Agency Partnership

How to Develop a Succession Plan for Your Real Estate Partnership

Q&A: Personal and Corporate Business Tax Extensions

If you have filed (or plan to file) a tax extension, Vyde has got you covered. From everything on how to file a personal or business tax extension with the IRS to what to do if you miss the tax deadline, and more…it’s all here. Check out the Q&A series on personal and corporate business tax extensions by exploring these posts:

Corporate Business Tax Extensions

6 Reasons Why Filing a Tax Extension with the IRS is a Good Decision

Top 10 Things You Should Do If You File a Corporate Business Tax Extension

Q&A: How to file a corporate business income tax extension with the IRS

Q&A: Do I need to request a state tax extension if I filed an IRS tax extension?

Q&A: My 6 month extension on my corporate business taxes is due on 9/15. Help!

Q&A: What if I can’t file my corporate business taxes by my IRS tax extension deadline?

Q&A: Can I file a second IRS tax deadline extension for my corporate business taxes?

Q&A: How do I file an amended tax return for my business?

Q&A: What if I missed the IRS tax extension deadline?

Personal Tax Extensions

6 Reasons Why Filing a Tax Extension with the IRS is a Good Decision

Top 10 Things You Should Do If You File a Personal Tax Extension

Q&A: How to file an individual income tax extension with the IRS

Q&A: Do I need to request a state tax extension if I filed an IRS tax extension?

Q&A: My 6 month extension on my personal taxes is due on 10/15. Help!

Q&A: What if I missed the IRS tax extension deadline?

Q&A: What if I can’t file my personal taxes by my IRS tax extension deadline?

Q&A: Can I file a second IRS tax deadline extension for my personal taxes?

Q&A: How to file an individual income tax extension with the IRS

Personal tax returns are due on April 15th, but with an extension, the deadline is extended until October 15th. If you have not filed taxes by the traditional April 15th deadline, there is a late filing penalty on 5% of what you owe, which is added to your tax balance each month you do not file taxes. Additional taxes and fees are also added if you do not file taxes on time.

However, if you know you will not be able to file your taxes on time, there is some relief. You can file an individual income tax extension that provides you with an additional 6 months to pay. You do not have to provide the IRS with a reason for your tax extension, you simply have to request one by the tax extension request deadline of April 15th.

In order to file a tax extension, you will need to fill out a Form 4868, available on the IRS website. This form can be submitted electronically or by mail, but it must be postmarked by the original tax deadline of April 15th or sent electronically by midnight.

After you’ve filled out the Form 4868, your tax deadline is now October 15th. However, filing a tax extension does not give you extra time to pay your taxes–it only provides you with time to calculate and file your income tax forms. Even with an extension, your tax payment is still due on April 15th, and needs to be submitted with your Form 4868. If you do not pay 90% of your tax payment by April 15th, you will incur late fees and penalty charges from the IRS.

If you filed an individual income tax extension this year and need help preparing your taxes, Vyde can help.

Other posts that might interest you:

6 Reasons Why Filing a Tax Extension with the IRS is a Good Decision

Top 10 Things You Should Do If You File a Personal Tax Extension

Q&A: Do I need to request a state tax extension if I filed an IRS tax extension?

Q&A: My 6 month extension on my personal taxes is due on 10/15. Help!

Q&A: What if I missed the IRS tax extension deadline?

Q&A: What if I can’t file my personal taxes by my IRS tax extension deadline?

Q&A: Can I file a second IRS tax deadline extension for my personal taxes?

Resources

Author: Jake Snelson

How to Track and Separate Business and Personal Expenses as a Realtor or Real Estate Agent

Here are 6 ways to keep your personal and business finances separate as a real estate agent or realtor:

Set up separate bank accounts.

Get a business credit card.

Keep meticulous track of shared expenses.

Understand what is a business expense and what isn’t.

Set your salary and stick to it.

Consult a professional.

Other posts that might interest you:

Interested in Learning More?

Here’s what you need to know:

Here are a few possibilities to consider when developing an exit strategy with your real estate business partner.

Why you absolutely need an exit strategy for your real estate partnership.

Other posts that might interest you:

Other posts that might interest you:

How Much Should I Set Aside for Taxes as a Real Estate Agent? For Realtors, Real Estate Brokers, and Property Managers

How to quickly calculate your estimated quarterly tax payment as a realtor, broker or property manager:

Other posts that might interest you:

Interested in Learning More?

Tips on Tracking Mileage and Deducting Vehicle Expenses as a Real Estate Agent

How to Legally Structure a Real Estate Partnership or Agency

General Partnership

Limited Partnership

Limited Liability Company (LLC)

Other posts that might interest you:

Interested in Learning More?

Basic Tax Deductible Expenses for Small Businesses and Real Estate Agents

Tax Deductible GoodWill Advertising Ideas

Tax Deductible Promotional Giveaway Items

Corporate Business Tax Extensions

Personal Tax Extensions