By Carrie Resch, Contributing Writer
Documentation is key.
That was the point guest speaker Janice Nichols drove home time and again during her tax strategies for business professionals presentation at last month’s Women’s Council of Realtors Business Resource Meeting and Luncheon.
Nichols is a senior program manager of the Tax Reduction Institute, a research and educational organization founded in 1979 and headquartered in Washington, D.C.
One of the institute’s areas of expertise is providing tax strategies for real estate professionals.
“You’re in a profession you can practically write-off everything you do,” Nichols advised the packed room of about 55 members and guests.
However, most independent contractors are unaware of deductions available to them and often end up overpaying their taxes, Nichols said.
Acknowledging that documentation can seem like a daunting and time-consuming task, Nichols inspired attendees to consider taking advantage of tax breaks in areas including home office deductions, automobile mileage, client and associate lunches, and even vacations.
Home office deductions
One of the most distinct ways independent contractors, such as real estate agents, can save money on their taxes is through a home office deduction.
The rules and regulations for those deductions relaxed several years ago,
If you do 90 percent of your administrative home from work, you’re eligible for the deduction, Nichols said.
Nichols said one of the most common methods utilized to deduct vehicles — the IRS method — will not maximize your deduction because the standard deduction does not take into account the cost to operate automobiles based on vehicle size.
For instance, operating costs for medium-sized cars will vary from operating costs of large cars, trucks or SUVs.
Instead, she recommends using the actual expense method where all of the money spent on an individual’s automobile is tracked.
Again, documentation is key, Nichols stressed. Receipts for money spent on the car can be stowed in an envelope you keep in the vehicle, she suggested.
There are several options when it comes to tracking mileage. The first is to track your mileage on a daily basis.
The daily method is generally the method most people are familiar with.
However, mileage also can be tracked for one week out of the month, as long as it’s the same week every month or three consecutive months out of the year.
“If we do it right, our automobiles are a tax-deductible gold mine and it all begins with the actual method,” Nichols said.
Mabel Nunez, a Realtor with Exit Real Estate Gallery, said she will definitely apply the mileage-tracking tips she learned at the meeting.
Nunez attended the meeting with her longtime partner, Dru Hawkins, founder and CEO of Mas Casa LLC, a real estate renovation and investment company.
It was the couple’s first time attending the Women’s Council of Realtors meeting.
“We have two businesses going, so this is very applicable to both,” she said.
Elizabeth Hand, also with Exit Real Estate Gallery and a first-time guest, likewise was excited to learn about mileage-tracking.
“That’s going to be very beneficial to me not having to keep up with every single mile that I drive for my business,” she said.
There is an existing tax rule that 50 percent of business-related meal and entertainment expenses can be deducted, but there also is a new rule the Tax Reduction Institute refers to as the “Dutch-treat rule.”
Going out to eat with a family member, friend, colleague or associate and paying for your own portion would qualify for a deduction, Nichols pointed out.
Any one of them could be a potential client and generally, you talk business when you sit down for a meal anyway, she said.
To figure out your average personal lunch expense, track what you spend on your lunches when you eat by yourself for 30 days out of the year.
The IRS allows 100 “Dutch-treat” lunches per year, Nichols cautioned, but they also allow 100 Dutch-treat breakfasts and 100 Dutch-treat dinners.
If the business-related meal or entertainment expense is under $75, you do not need to keep the receipt, Nichols said, but you do need to document the meals in your daily planner.
The planner can serve as documentation proof in the event of an audit.
According to Nichols, five things have to be present when you document a meal: the date, with whom you went, the location, the cost and the purpose.
Hiring relatives and vacations
Hiring a spouse or your children can be financially beneficial, Nichols said.
Children ages 7 and up can work for you doing simple tasks, but you have to be sure to set up the contracts correctly — something your accountant can help you with.
Children under 18 can earn up to $6,300 in tax-free income, according to 2016 and 2017 rules. An account can be set up for the child and money from that account can be used to pay for anything that benefits him or her.
“You still have to report their income, but that’s the amount of the standard deduction, so it zeroes out,” Nichols said.
Vacations are another area that can be taken advantage of for tax breaks.
If you combine work with your vacation, it becomes tax deductible, Nichols said. Just be sure to document it.
Prior to taking a trip, she recommended sending an email to agents in the area, telling them of your visit and that you’d like to talk about setting up a referral business.
The email will serve as documentation of intent for the trip. Write the appointment in your daily planner, print and save the email as well as the fliers and business cards you collect on your trip in a file for additional documentation.
At the end of the presentation, Women’s Council of Realtors Jacksonville Chapter President Diane Cook asked for a show of hands from attendees who learned something.
Nearly every hand in the room immediately shot up to Cook’s delight.
“I think everyone enjoyed it,” she said of the presentation, adding she wanted to have Nichols as a guest speaker to demonstrate some tips that will help everyone save money and keep more in their pocket.
Cook said her goal for the year is for members, business partners and guests at every business resource meeting to be able to walk away with something they can use to benefit their business.
“I’d say we accomplished that today,” she said.