We’ve all heard the phrase “If you fail to plan, you plan to fail.” Certified public accountant Keisha L. Rondeno put a little twist on that at her session on tax strategies for real estate professionals during NAR NXT, The REALTOR® Experience in Orlando, Fla., earlier this month. “If you don’t plan to save, you plan to pay,” she told attendees, urging them not to wait until the tax filing deadline to start thinking about ways to minimize their taxes.
Generally, accelerating your planned 2023 business expenses into the current tax year could be worthwhile if you had a stellar 2022 and want to try to bring down your marginal tax rate. Among the year-end tax strategies to consider:
- Prepaying 2023 business expenses.
- Purchasing a vehicle.
- Prepaying health insurance premiums, which must apply to a period of no more than 12 months after the year the payment was made.
- Paying for business gifts. (The Internal Revenue Service limits the deductible amount to $25 per employee or client.)
- Making charitable contributions.
- Buying business assets.
- Establishing or funding a retirement plan.
- Inviting clients out for a business meal. One pandemic-era perk remains through the end of 2022: You can deduct 100% of food or beverages purchased from a restaurant as long as the meal meets the other IRS rules for business meals.
More generally, you can deduct all the necessary and ordinary expenses of running a real estate business, including license renewal fees, continuing education and business-related membership dues. One exception: You can’t deduct lobbying expenses. Thus, for the 2022 tax year, 36% of your $150 National Association of REALTORS® dues—or $54—is nondeductible for income tax purposes. The entire $35 special assessment for NAR’s “That’s Who We R” consumer advertising campaign does qualify as fully deductible.
Rondeno, who specializes in working with real estate professionals, said the biggest tax mistakes people make are:
- Not tracking their business transactions throughout the year.
- Not planning their tax situations.
- Not correctly taking deductions.
- Not paying their estimated taxes, resulting in interest and penalties owed to the IRS.
- Not understanding their taxes.
“Don’t just turn over your receipts. Have a conversation with your accountant,” Rondeno said, and make sure you understand how your income, expenses and deductions are being recorded.