4 Costly Mistakes Many Realtor’s Make

mistakes

As A Realtor, tax planning and making astute decisions CAN and WILL save you thousands of dollars.  Unfortunately the opposite is also true.  I have seen Realtor’s overpay the IRS thousands of dollars each year simply because they believe the following myths.

Myth #1 I am a Realtor, not a business owner.

This is the single biggest financial mistake a Realtor can make.  A successful business owner focuses on maximizing their business’s profits.  This is done by implementing strategies to increase income and reduce expenses and of course taxes.  Remember, as a Realtor, you work for yourself, i you are not managing your real estate business as a Business Owner, you are losing A LOT of money.

 

Myth #2I only really need to worry about taxes when I am ready to file my tax returns.

Oh boy, this one is a killer.  As I tell ALL of my clients, if you are first starting to think about your 2016 taxes when it’s time to file them, you are about to pay the IRS a lot more than you needed to, had you planned.  The key to lowering your taxes is to PROACTIVELY plan, not be reactive like many Realtors are.

 

Myth #3Incorporating and managing a corporation’s taxes will cost more than what I will save in taxes.

Yup, I hear this one all of the time.  Some Realtors just can’t get out of their own way to help themselves.  While opening and managing a corporation is definitely a decision that should be understood, the tax savings for Realtor’s earning $25,000 or more will be significantly greater than the cost of all required tax filings.

 

Myth #4Just because I have a corporation doesn’t mean I need to take a salary.

Ok, this is a BIG mistake and one that can cost you A LOT of money.  The IRS requires corporation owners who work to take a “reasonable” salary.  While it is true that S-Corp tax returns have an extremely low audit rate, the IRS can reclassify a corporations profits to salary WITHOUT auditing the tax return.  So its very easy to avoid a dreaded and very expensive profit reclassification, TAKE A SALARY, we will help you.

 

Contact us today and let’s make sure you are taking advantage of every opportunity you have as a Realtor and Business Owner to lower your taxes, and keep more of your income.

How Realtors can reduce the chances of an audit.

Going through an audit sucks.  There are no other words to describe it.  Getting audited can be very trying on you, your business and your family. An audit certainly is stressful but with preparation and professionalism you will conquer and get through it.  That being said, the best way to overcome an audit is to avoid one completely.  Sounds impossible right?  Well actually it’s possible and I can prove it!  Knowledge is power, the first thing you can do is learn why incorporating your business will greatly your chance of getting audited.  Below please find the IRS data book from 2015.  This page shows the audit percentages from the various tax returns filed in 2014.  Focus on the asterisked tax returns.

irs-data-book-2015

You will notice that the top starred tax returns are those of non-incorporated businesses (sole proprietorship’s).  You will notice that approximately 2.5% of these tax returns are audited.  This means that 2-3 out of every 100 tax returns were audited.

Conversely the asterisked tax return type at the bottom of the page is that of an S-corporation.  You will notice that .4%.  This means that 4 out of every 1,000 s-corporate tax returns were audited.

These are immense differences, and the best thing about it is that YOU can take advantage of this, so if you are ready to lower your chances of an audit contact The Florida Tax Guy today, our phone is 561-350-9278 or via email at dave@floridataxguy.com

Monthly Realtor Income & Expense Log

I can not stress enough the importance of keeping proper records.  Record keeping not only will allow you to prepare your tax returns accurately, it will keep you more organized.  Most importantly, you will have a much better handle on how profitable your business is.  I also can not stress the importance of keeping records, if you are ever audited this will be paramount in saving you money and A LOT of headaches.

Therefore, I have created a log for specially for Realtors, feel free to use it, I hope you do and I hope it helps.  Please feel free to left click and save the log below.

realtor_log-complete

Taking Advantage of IRS

I knew that title would get your attention.  However, be clear this post will NOT explain how to pull a fast one on the Internal Revenue Service.  Our goal is to show you how we will utilize IRS to help you lower your taxes and lower your chance of an audit nightmare.

Yes it is true the letters IRS often are synonymous with fear, anger and disgust, but we are going to “flip the script”  Here are three of the most important things you can and should do to put a great strategic tax savings plan into place.

I- Incorporate – I can not stress this enough, if you are self employed and you are in the real estate business to make money, you are running a business.  Without a proper business structure you are leaving yourself open to extra liability and the probability for significantly higher taxes.  In Florida as a licensed professional you can become a PA (professional association) and your broker can pay your PA directly.  There are many advantages on becoming a PA, but for accounting and tax purposes the two biggest are again: LOWER TAXES & SIGNIFICANTLY REDUCED CHANCE OF AUDIT.  Operating your real estate business as a PA provides you with greater flexibility, as now you are not only a business owner, but you will also become a w-2 employee of the PA you own!  Ok, this may sound complex and a bit overwhelming but I promise you its not.  Even better, once you get started, you will quickly learn and understand just how much flexibility and tax savings potential you have.

R- Record keeping – This is the one that many people overlook and I must say this is the most important when it comes to maximizing deductions and audit defense.  Without good records your accounting will be a nightmare.  Even worse in the event of an audit, without being able to prove your expenses, the IRS will disallow your valuable deductions.  I often tell my clients to keep records of EVERYTHING, and better yet keep a monthly log of all expenses, this will not only allow for a quick financial snapshot to see your current Profit & Loss, but will also give you a very good idea of what your tax liability will be.

All of my clients will be provided with a personal secure cloud based folder where they can easily upload all receipts and expense logs.  This allows me to track their P&L and give them a monthly snapshot of how much in taxes they will owe.

S- Salary- As you recall from the Incorporation section of this post, once you structure your business as a PA (professional corporation) you will not only be the owner of the corporation you will also be an employee of the company.  This is EXTREMELY important.  What this basically means is that you need to take a salary.  To determine a salary I generally discuss many variables with my client which include: the amount of time they dedicate to working, their gross revenue and expenses.  Taking a salary provides you with an unbelievable amount of flexibility.  Most Realtors who are self employed and are not structured as a PA, will pay significantly more in taxes and one of the main reasons is, they DO NOT have a salary.  The tax savings hear can be immense! The main reason is due to decreased Self Employment tax.

This is a detailed subject and if you are interested in learning more I am happy to do so face to face or over the phone.

 

In summation, if you use I-R-S as shown above you will be on your way to lower taxes and more security.  Please feel free to contact David Byck at 561-350-9278 or via e-mail at dave @floridataxguy.com to set up an appointment or simply learn more.

Realtors and Taxes

I have asked many Realtors what comes to mind when I mention the letters IRS.  The answers I received were as follows:  Anger, disgust, scared, audit, tax, money owed, debt, confusion and distrust.

These answers were exactly what I expected.  After all,  Realtors in general have some of the highest audit rates of any profession.  Why is this you ask?  That’s a great questions.  The answer is for one main reason, Realtors are self employed.  A self employed professional has much more tax exposure and record keeping requirements than that of a w-2 employee.  That being said, with greater exposure comes greater flexibility.

One of the biggest benefits a Realtor has is the ability to implement a sound tax planning and record keeping strategy.  Just by implementing a sound strategy a Realtor can save themselves THOUSANDS of dollars in taxes and avoid an audit nightmare.

A sound strategy is NOT just about maximizing tax deductions, that is just a small piece in an otherwise very large plan.  In order to truly take advantage of many of the legal tax savings strategies, the implementation of the entire strategy must be done correctly.

My team and I have helped many Realtors implement our Realtor tax planning strategy and we will be happy to help any Realtor who is ready to take the steps necessary to reduce their overall tax burden and decrease their audit exposure.  Call David Byck, EA CTRS at any time at 561-350-9278 or e-mail at dave@floridataxguy.com