To be effective in any business, not only must you do a good job at selling your product or service, but it is imperative that you keep good records. Tax records are no exception to the rule. Did you know that when you don’t keep up with your expenses, you end up overpaying your taxes? Tax rates are high enough, and there’s no need to pay more than your share.

The tax codes allow for business owners to take deductions for legitimate business expenses. As a realtor, you are considered self-employed (that’s if you have not formed a partnership or corporation). As a self-employed individual, you are required to report your business income and expenses separately on a Schedule C.

So what’s deductible? Here are a few that might fit your situation:

Auto Expenses. As a realtor, one of the major expenses you can deduct is the business use of your vehicle. You may either deduct the standard mileage rate or the actual expenses for the amount of business use. It is very important that you keep a mileage log. Your mileage logs should document all your business use of your vehicle. The standard mileage rate for 2008 is a flat rate of 50.5 cents per mile from January 1 – June 30.  It was increases to 5.5 cents per mile effective July 1, 2008. If you don’t use the standard mileage rate, you may be able to deduct actual expenses including depreciation, insurance, lease payments, registration, repairs, tire purchases, gas, oil and license fees. Even if you opt to deduct the actual expenses, you are still required to keep a mileage log. The mileage log is what is used to determine the percentage of use. For example, if you drive 500 total miles in one week, 250 are business and the other 250 are personal, your percentage of use is 50%. You would be able to deduct 50% of your actual expenses.

Gifts. For new or returning clients, you may choose to offer new home or closing gifts. Please note that for each client, you may deduct up to $25 per client per year for these gifts.  Any thing above the $25 threshold is not deductible.

Meals & Entertainment. Business and entertainment expenses are deductible as well. Travel away from home for business, conventions, or conferences are considered deductible expenses. The costs involved with entertaining clients at restaurants or clubs are also deductible. Good recordkeeping is a vital part of establishing your claim for these expenses. It’s a good idea to include details about the involved parties and the business purpose of the expenses. These records are not necessary for preparing the return, but are needed for audit purposes.

Health Insurance. Self-employed individuals are entitled to a health insurance deduction. You can deduct 100% of the amount paid for medical and qualified long-term care insurance for you and your family in a plan established under your business.

There are many other legitimate deductions for Realtors, and we can work together to realize your tax savings. Avoid needless overpayment on your taxes and seek our professional advice.

When determining whether your workers are employees or independent contractors, there are several factors you must consider.  The traditional test to determine a worker’s status involves the concept of control.  The IRS developed 20 factors to resolve a worker’s status as an independent contractor under the common law.  The burden of proof is also on the taxpayer.  It is understood that at least 11 of these factors should present evidence of an independent contractor’s status under the common law tests.

For the following questions, answering “yes” means the worker is an employee.

1. Instruction. Does the principal provide instruction to the worker about when, where, and how he or she is to perform the work?
2. Training. Does the principal provide training to the worker?
3. Business Operations. Are the services provided by the worker integrated into the principal’s business operations?
4. Exclusivity. Must the services be rendered personally by the worker?
5. Control of Assistants. Does the principal hire, supervise and pay the worker’s assistants?
6. Continuity. Is there a continuing relationship between the principal and the worker?
7. Schedule. Does the principal set the work hours and schedule?
8. Availability to Others. Does the worker devote substantially full time to the business of the principal?
9. Location. Is the work performed on the principal’s premises?
10. Directions. Is the worker required to perform the services in an order or sequence set by the principal?
11. Reporting. Is the worker required to submit oral or written reports to the principal?
12. Pay Frequency. Is the worker paid by the hour, week, or month?
13. Discharge at will. Does the principal have the right to discharge the worker at will?
14. Termination. Can the worker terminate his or her relationship with the principal any time he or she wishes without incurring liability to the principal?
15. Reimbursement of Expenses. Does the principal pay the business or traveling expenses of the worker?
For the following questions, answering “yes” means the worker is an independent contractor.

1. Tools. Does the worker furnish his/her own significant tools, materials and equipment?
2. Investment. Does the worker have a significant investment in facilities?
3. Profit or Loss. Can the worker realize a profit or loss as a result of his or her services?
4. Other Clients. Does the worker provide services for more than one firm at a time?
5. Availability. Does the worker make his or her services available to the general public?

Keep in mind that if you are found misclassifying an employee, you could face substantial penalties.  This article is intended to give the reader an overview.  It should not be taken as legal or accounting advice.  Seek our personalized, professional advice to guide you through the intricacies of tax matters.  Call us today for a business consultation  678-608-2775 .

Have you ever heard the saying, “Been there, done that!”?  Well I have not been there nor done that but I’ve certainly seen it more times than I care to share.  Here are four things that are sure to send your business to an early grave.

1. “Free” Counsel – If I hear this one more time, I think I’ll scream. “My cousin’s plumber said I could deduct my haircut because…..blah blah blah”. Now, why do business owners have such a tendency to take advice from everyone but the professional? One of the fastest ways to kill your business is to keep listening to everyone but the professional, trying to save a buck. Think about it, do you call your electrician when you have a toothache? No, that’s ridiculous right? Well why do you get tax advice from your cousin’s friend’s plumber? So if you want to stay in business for years to come, pay for professional advice!

2. Your Buddies – Going into business with family and friends can be a nightmare. One of the biggest issues when going into business with family and friends is the lack of formalization. Here’s the scenario, sisters go into business together and they forget about creating a partnership agreement or an exit strategy. They just know that they love baking and they want to sell their delicious treats to the world. But problems arise when the bank account is empty and the creditors are calling. Or even worse when the phone stops ringing or the doors are not swinging open. If you must go into business with a family or friend, be sure to put everything in writing. I can’t stress the importance of knowing how you will handle the tough situations before they happen.

3. Plastic – As soon as you get a business license, incorporate in your state, or register for a Tax ID number using your business name, you get on the dreaded marketing list. Everyone will try to offer you something, i.e. merchant accounts, uniforms, marketing postcards, free checking accounts, phone service, and the biggest culprit of all….a Business Credit Card! Though a business credit card can be useful to the growth of your business, be careful of the trap. The interest rates on credit cards are outrageous and it’s a very dangerous way to finance your business. I recommend, if you do use a business credit card that you pay your balances off each month. That way the interest rate is not an issue.

4. Time Clock – Salaries and wages often times accounts for over 50% of all business expenses, mostly because the payroll taxes. As an employer you are responsible for not only matching your employee’s Social Security and Medicare Tax but you must remit them to the IRS. If you don’t, you will be in serious trouble. Failure to remit payroll taxes could result in the IRS coming by and shutting your doors for good. So it’s a good idea to subscribe to a payroll service or hire a professional to handle the payroll.

Owning a business includes more than just selling your product or service. Seek professional advice on areas that are not your area of expertise. Call us today for a free consultation 678-608-2775.