This week we spoke to Kathy, one of our Real Estate Agent clients about what deductions she can use to minimize her tax liability.   Business Insurance, Vehicle Deductions and Business Meals can be some of the larger deductions allowed.  Below is a summary. 

 Business Insurance 

It is vital that you are keep track of any insurance coverage that you are paying for your real estate business such as:

• E&O Insurance
• General Business Insurance
• Private Health Insurance
• Auto Insurance

Bottom Line on Business Insurance:

We don’t have to tell you how these expenses can add up. There is nothing worse than not maximizing an expense for a cost of doing business that you may never use.

 Vehicle Usage

Automobiles can be a tricky tax deduction for Real Estate Agents. Like most people, agents prefer to drive a nice car.  It presents a successful image and that helps drive business.  To maximize that expense, it needs to be accounted for properly.  When it is not, it can cost you plenty of lost tax deductions.  Most people do not know about the different options that you have to deduct a vehicle.

You have two choices when claiming a vehicle tax deduction.  

Simple Method (Standard Mileage Deduction)

• The simple method is to take a cost per mileage driven for business.  
• For 2021, the per-mile deduction is $.58 per mile.
• Additional items such as registration fees and taxes, vehicle loan interest, car washes, tolls, and parking fees can also be included in the standard mileage deduction.

Simply put if you drove 10,000 miles, you could deduct $5,800 from your income.

Complex Method (Itemization)

The more complicated method is where you itemize the different expenses made throughout the year to maintain and service your vehicle.

Should you go the more complex method here are the different deductions you can claim:

• Maintenance
• Gas and Electricity
• Parking
• Lease Costs
• Car Washes
• Interest on Auto Loan (not the payment)
• Tires
• Title
• Licensing
• Registration
• Depreciation (see below)

There are multiple ways to calculate the depreciation expense for a vehicle:

• Straight-Line Depreciation
• Accelerated Depreciation (MACRS)
• Bonus Depreciation
• Section 179 Expense Deduction

The method of depreciation that is right for your business depends on several factors that can be discussed with your tax advisor.

Bottom Line on Vehicles:

If you drive a lot of business miles (over 15,000 annually) and your vehicle is less expensive (less than $30,000), then the standard mileage deduction is probably your best bet. If you have a costly vehicle and do not drive a lot, you are likely better using the more complex method of itemization. 

Business Meals

Business meals at a restaurant are now fully tax deductible — at least for the next two years. To promote increased business spending at restaurants, the “Consolidated Appropriations Act, 2021” directed the IRS to increase the deduction from 50% to 100% of the cost of food and beverages provided by a restaurant.  The temporary allowance of 100% deductions applies only to food and beverages provided by a restaurant and only for tax years 2021 and 2022.  Keep in mind that Entertainment (client golf, sporting events etc.) is still not a deductible expense. 

Bottom Line on Business Meals:

Make sure to save those business meal receipts.  It could save you plenty of money for the next two tax years.  And you can enjoy a good meal with clients and business partners too. 

Are you maximizing the tax code to minimize the tax burden on your Real Estate business?