It’s that time to start considering your tax deductions. If you own a real estate business, just about everything you purchase can be a tax deduction, provided it is necessary to the business and the cost is reasonable. Deductions are a great way to save your business some hard earned profits. A $900 computer purchased for the business which resides in the 30% income tax bracket, could save you from paying $270 in income tax. Essentially, it’s like saving 30% on the purchase price of the computer, but you must use the computer for your legitimate business. Personal expenses are not deductible.
What Are Common Deductions?
Real estate professionals most commonly deduct the following expenses:
Office Expenses: Anything you spend on your business’s office can be deductible, including rent and utilities. If you work from home, there are certain criteria that can qualify your home office to be eligible for deductions. His deduction is particularly beneficial if you rent your home, because a home office for your business allows you to deduct a portion of your monthly rent.
Travel: If you have to leave town for business purposes you may be able to deduct expenses, including airfare and hotel or other housing costs. Meals during business travel are only 50% deductible. It’s possible to get a deduction even if the trip is half business half vacation, if it’s planned correctly.
Car: Most small businesses claim truck or car deductions more than any other expense. You can deduct all of the driving expenses that you do for your business, with one exception: Driving back and forth to work from home. If you don’t want to keep an itemized list, you can use the standard deduction rate of 56 cents on each mile for the current tax year (2014). To use the standard rate, you only need to keep track of your miles, opposed to individual costs for gas, repairs, etc.
Meals/Entertainment: Previously, businesses were able to deduct a wide variety of lunches and fun activities, like sporting events or shows. However, the IRS has cracked down on such deductions, and currently you are required to have a serious business intent for attending the event, and you are required to have an in-depth business conversation before, during or immediately following the event. Even in these cases, you are only entitled to deducting 50% of the expenses.
Depreciation: Long term property purchased on the business’s behalf is subject to depreciation, at which you can claim the cost a little at a time. Examples of this property may be cars, computers, furniture, and other items that lose value as they age. You aren’t always required to consider the depreciation amount, though. Through the Internal Revenue Code, Section 179, small business can deduct the entire cost of property, which allows for a single larger deduction in one year rather than smaller ones through several years.
Supplies: Businesses can deduct any expenses they occur from purchasing supplies for business purposes. These expenses can range from postage stamps to rubber bands.
Legal Services: If your business has used services provided by a professional, such as an attorney, accountant, or consultant to whom you have paid fees, you can deduct the expense if it’s directly related to the business.
Insurance: Any insurance coverage, such as liability or property insurance that applies just to the business is deductible. Home offices allow you to deduct a portion of your homeowner’s insurance fees. Also, those who are self-employed can deduct all of their health insurance expenses.