in Blog by Secure Investments Realty

Tax Stratagies & Business Planning for Real Estate Professionals

Name: Tanya Chappell
Address: 3520 NW 43rd St., Gainesville, Florida, 32606, USA
Telephone: +1(352) 478-8029

Tax Strategies & Business Planning for Real Estate Professionals

By Jo Ann Koontz, Esq, CPA, Koontz & Associates PL, 941-225-2615

All Realtors should operate under an LLC if you work for another Broker or a S-Corp if you are the Broker. There is a tax savings in the S-Corp filing status. Basically your dividends (profit above your salary) gets taxed at a lesser percent.
Most Realtors don’t know you need to put the letter P for professionally licensed before the business entity classification of LLC so it becomes PLLC or if your a Corporation, it’s PA which stands for a professional association. The purpose of being an PLLC (LLC) or PA (Corp) is to limit your liability. Seven years ago you didn’t need to have the P for professional association in the name. You are grandfathered in. Real Estate Agents are required to have these letters of designation of status in their name with FREC on your business cards and on your signs.
Corporations must file annual meeting minutes each year with the Florida Department of corporations, have a separate tax ID, and separate bank account. An LLC isn’t required to file annual minutes.
The primary advantage of an LLC over a partnership is that all LLC members are protected from personal liability for the entity-level obligations.
As a Corp or LLC you cannot co-mingle personal money in your business account.
Money you use to start your business is capital that will not be taxed when you take it back out. But you need to classify it correctly in order for that to happen.
Income from rental properties are characterized as passive income subject to 3.8% tax. An exception to this rule relates to rental real estate professionals. The IRS determines that status based on the following criteria:
- More than one-half of the personal services you perform in all of your activities during the year must involve real property trades or business in which you materially participate.
- You must perform more than 750 hours of service during the year in those real property trades or business.
- A real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisitions, conversions, rental management, leasing or brokerage trade or business.
If you own rental property as well as practice real estate as a profession you cannot put your personal rentals under your business practice corporation. Put your rental property under a separate LLC.
Realtors routinely have high risk especially on these expenses:
- Auto/Mileage
- Meals and Entertainment
- Advertising
Meal deductions: Five W’s on actual meal receipts.Who, what, when, where, and why to be deductible. Save the actual receipts do not rely on credit card statement.
Business mileage tracker apps are a great way to track your mileage. You must have where you’re going and why and your start and end mileage.
Great apps to track business mileage: Trip miles and Mile IQ
You can lease your car to your company and instead of mileage deduction you can do actual cost (gas, repairs, payments, insurance). Be sure to add your company name to your car insurance or you’re not covered. If you have assistants that run errands you need non auto owned coverage for them it’s not expensive.
Advertising must be for actual advertising. If you’re sponsoring a professional gathering that isn’t advertising. You can classify those under promotions public or public relations but it’s a red flag if your advertising dollar is too high.
Travel- document the five W’s again. If part of the travel is personal, you can only claim the deduct for the business time.
Home office deduction: equates to on average about $400- $600 savings a year – not worth cheating. There’s a max.
You can’t have another office available to you. Another desk somewhere. You can’t just decide you like working at home and write it off.
You can’t have personal stuff in your home office like a bed clothes etc.
You should have a second phone line. The items that are deductible are a portion (based on square feet) of RE taxes, mortgage interest, utilities, Internet, repairs and depreciation. It’s not recommended that you take the depreciation deduction on your home because it will affect your capital gains tax when you sell the property.