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It’s That Time… Avoiding an Audit

Avoiding an Audit

As we wrap up 2016 and move into 2017, it’s time to be planning ahead. We love planning ahead for our future goals and success! It’s the best part of a new year.

Unfortunately, you also have to plan ahead for some less pleasant things – like taxes. Many Realtors® use the last two months of the year to make investments in their marketing and other aspects of their business that they can use as write-offs.

Tracking these expenses correctly so that they can be reported on your taxes is essential. Also, it’s good to know what types of things might trigger an IRS audit so you can avoid them.

Unreasonable Deductions

The IRS knows that every sole proprietor wants to save as much money as possible on taxes, and will take as many write-offs as possible. However, they will be on high alert against any deductions that are unreasonable.

Trying to write off your backyard pool as a business-related health and wellness expense? Do so at your own risk. The IRS keeps an eye out for anyone who gets too creative. Just because someone – even an accountant – says you can get away with it doesn’t mean you should try.

Deductions That Seem High For Your Income

Are you trying to get your adjusted gross income to show $0 each year to avoid taxes? If you do, keep in mind that you have a more than 5 times higher chance of being audited.

If your deductions manage to wipe out your entire income, the IRS will take note. Obviously, as a first or second year Realtor® it may be entirely legitimate. But much beyond that and you’re probably getting too zealous with write-offs.

Be sure that you can back up all deductions with a receipt, so that if someone does check on it, you can prove your case quickly.

Excessive Charitable Donations

We all love giving, and none of us are immune to the reminder that charitable donations are tax deductible. You might think you’re hitting two birds with one stone, and in most cases you are.

However, keep in mind that the amount you can deduct is limited by your income and the type of charity you’re donating to. While that’s a bummer, it’s important to make sure that you don’t overreport or over-claim charitable donations.

Like all deductions, make sure you have a written statement from each charity you donate to, showing your name and donation amount.

Poorly Tracked Mileage

Realtors® write off a lot of mileage expenses, but it’s essential to track this carefully. If you report an amount of mileage that doesn’t line up proportionally with what you have reported in the past (ie, similar income but three times the mileage), it’s a red flag to the IRS.

It’s a pain to track what mileage on your car is for business and what’s for personal use, but it’s vital to avoiding an audit. When you have a careful tracking system in place, you probably won’t raise any concerns with the mileage you deduct. If you do, you’ll have the records you need to quickly resolve the concern.

Tracking expenses carefully and keeping receipts can be time-consuming, but not nearly as time-consuming as handling an audit. Work with a professional to file your taxes if you can, and if not, be sure to go over your documents thoroughly.

If you’re ready to invest in some year-end marketing, let us know! We can set you up with business cards, postcards and more! Contact us today.

7 Can’t Miss Tax Tips for Realtors®

Tax Tips for Realtors

It’s that time of year again – tax season is upon us. Instead of the usual rush to the finish line on the night before April 15th, why not get a jump start on your taxes this year? That way you’ll be done and able to focus on business during the busy spring season. A good place to start is getting your deductions in order.

That’s right – deductions. As a Realtor®, there are numerous deductions you should be taking that will save you money on your taxes in the long run. As long as an expense is necessary, not out of the ordinary, and deemed appropriate for your business, there’s a pretty solid chance that you’ll be able to write it off as a deduction.

To help you prepare for tax season, we came up with a list of tax tips and commonly missed deductions, specifically for Realtors®. Take a look and give them a try…

  1. Mileage and Auto Expenses

You probably know by now that you can deduct gas and mileage used for business purposes, but did you also know that this deduction applies to things like parking fees and tolls as well? These small fees may not seem like a lot, but over time, they definitely add up so be sure to keep track.

As far as mileage goes, don’t slack on your record keeping! If you’re looking for a great way to keep track of your miles, give Mile IQ a try. An Apple app, it’s easily downloadable and once set up, automatically tracks the miles you drive so you don’t even have to think about it.

  1. Office Space and Supplies

This is a great one, especially if you work out of your home. Any portion of your home or apartment that is regularly used for business can be written off as a tax deduction. And don’t forget about utilities – you can write a percentage of those off too!

Plus, any office supplies you use throughout the year can also be written off. Whether it’s pencils, staples computer paper, or the actual computer, you can write it off as a business expense.

  1. Advertising Expenses

Did you know that you can deduct and money spent on advertising and/or marketing throughout the year? This deduction is lesser known that some of the others out there, but is effective in saving you tax dollars.

And don’t forget that advertising expenses extend to print advertising costs as well, including things such as business cards and postcards. If you used them to promote your business, don’t forget to include them in your deductions.

  1. Education and Training for You and Employees

Investing in learning and development for you and your employees is critical to the growth and success of your real estate company. Plus, all things related to training and education are also – you guessed it – tax deductible! If you sent your employees to a training seminar or educational conference, you can definitely write that off – double bonus.

  1. Tax Forms and Documents

Don’t forget to fill out the proper tax documents for any contractors and employees you have. This can be a time-consuming process, especially if you haven’t kept up with it throughout the year, but don’t let that get in your way. Take the time to properly complete tax documents – it will save you a lot of time and a large headache in the long run.

  1. Gifts for Clients

Did you purchase thank-you gifts for your clients this year? Don’t forget to include them in your deductions. This is an often forgotten deduction, so be sure not to overlook it!

  1. Stay Organized with Evernote

Even if your 2015 tax receipts and forms are a mess, it’s not too late to start planning for 2016. Staying organized and keeping good records throughout the year is much easier than having to go back and double check everything at the last minute. Do yourself a favor and download the Evernote app. This little app is a serious life saver, and can be used to keep track of everything from appointments to expenses. The initial version is free, so give it a try today!

With these 7 tax tips in your arsenal, you’re ready to conquer tax season like a pro. Don’t wait until it’s too late – start working on your taxes and deductions today. You’ll thank yourself in the spring when you’re listing homes and other Realtors® are stressing about taxes!