Real Estate Agents 2017 Tax Year How to save on TAXES Real Estate Agents 2017 Tax Year

1 INTRODUCTION 2 THE REAL ESTATE INDUSTRY 3 TAX PLANNING 4 S-CORP 5 DEDUCTIONS / EXPENSES

Introduction B.J. Cottrell Jr., EA, CAA Partner – Cottrell Tax & Accounting, LLC Founder – Tax Training & Tutorials, LLC Affiliate Member of NABOR Previously on Budget & Finance Committee Currently on Global Committee Enrolled Agent (EA) - Licensed by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS), including examination, collection and appeals functions. Certified Acceptance Agent (CAA) – Authorized by the IRS to authenticate passports for foreign Individual Taxpayer Identification Number (ITIN) applications. Needed for all FIRPTA transactions.

The Real Estate Industry The Real Estate industry is unique in two major ways. One … your income can drastically change from year to year. Two … you get paid with a 1099, subjecting your net income to 15.3 % self-employment tax, on top of your income tax bracket. Additional 15.3% Self Employment Tax on all Net Income 1099 Income Fluctuation Unique 2 Ways 25% Income Tax 15.3% _____ SE Tax Large Closing Economy Personal Life 12/31 vs. 01/01 40.3% Total Tax

Income Fluctuation We attack the income fluctuation with TAX PLANNING. We meet with every one of our realtors in late October / early November to review their income and expenses for the year. This is a free service we provide for all of our realtor clients. We do it at the end of the year so we have accurate numbers for most of the year and can more accurately project the last few months. Then we have time to make changes: adjust payroll make estimated tax payments suggest extra expenses make large purchases setup and contribute to retirement and many more If you wait until the year is over, it’s too late. Month Dollars

S-Corp 1099 Owner Worker 1099 & Self Employment Tax We deal with this by setting up an S-Corp. This allows us to limit the amount of self-employment you have to pay each year. We are able to do this by paying some of your net income through payroll (subjected to SE tax) and the rest in distributions not subjected to SE tax. This way you wear two hats: Owner – K1 not subjected to SE tax Worker – subjected to payroll tax (W-2) S-Corp Owner Worker

PA LLC PL / PLLC S-Corp Corporation S-Corp Single Member LLC STATE Florida Department of Regulations PA LLC PL / PLLC FEDERAL IRS -Tax Return Corporation S-Corp Single Member LLC Partnership S-Corp Single Member LLC Partnership S-Corp We suggest that a Real Estate Agent be either a Single Member LLC or an S-Corp for tax purposes. Therefore, the LLC, PL, or PLLC is the best option, because it allows you to be either a Single Member LLC or an S-Corp. NOTE: an election is needed for any of the entities to be taxed as an S-Corp.

S-Corp How it Works Need to Set Up Company With State of Florida Need to Change Your RE License – Form # DBPR RE 16 S-Corp Election Separate Bank Account and Records Separate Tax Return (1120S) – K1 flows to individual return Payroll For All Workers – “Fair and Reasonable Salary”

S-Corp vs. Individual (1040) Total Income $ 150,000 $ 150,000 Total Expenses $ 50,000 Net Profit Before Salary $ 100,000 Salary $ - Taxes Income Same Self Employment Tax $ - $ 15,300 FICA Employment Taxes $ 7,650 Florida Unemployment $ 216 Federal Unemployment $ 42 Cost Annual Filing $ 150 $ - Tax Return Preparation $ 750 $ 300 Payroll Preparation $ 775 Total Taxes and Cost $ 9,583 $ 15,600 S-Corp Tax Savings $ 6,017

Deductions / Expenses Retirement Planning – 2017 Individual (1040) & S-Corp (1120S) Traditional or Roth IRA - $5,500 ($6,500 > 50) Simple IRA – $12,500 ($15,500 > 50) SEP – 25% of compensation / Max $54,000 S-Corp (1120S) ONLY Solo 401(k) – Elective Deferral $18,000 ($24,000 > 50) (W-2) 25% of Compensation Max $54,000

Deductions / Expenses Accounting & Tax Prep Advertising Newspapers - Giveaway Items General Magazine - Business Cards Proprietary Magazines - Signs Radio - Flyers TV - Direct Mail Billboard - Telemarketing Internet - 1-800 Number Internet Design Work - Web Site Maintenance Fee Home page, access, email fees - Advertising - Other

Deductions / Expenses Automobile Mileage Actual Automobile Expenses Need to keep a log of all miles IRS has accepted a 3 month average in certain cases Make sure to get service done on your automobile at the beginning of every year so you have a starting and ending mileage _____ Total Business Miles (Standard rate 2017 = $0.53.5 per mile) _____ Total Miles Actual Automobile Expenses Includes Fuel Repairs – Oil Changes, tires, other repairs Insurance Vehicle registration, license Vehicle lease or rental fees

Deductions / Expenses Bank Charges Charitable Contributions (Deductible on Personal Return) Clothes / Uniforms Uniforms only ! Computer Expenses Contract Labor Technology Support Coach Copies Credit Reports Customer Gifts $25 per person ($50 per couple)

Deductions / Expenses Continuing Education Dues Equipment Home Office Books Newsletters Tapes / CDs Seminars Magazine Subscriptions Dues MLS NABOR Board of Realtors Other Equipment Copier Fax Computer Cell Phone Interest / Finance Charges Home Office NEW Simplified Option ($15 p/sf -- $1,500 Max) Can not take if S-Corp Insurance E&O Insurance – Health Property - Office

Deductions / Expenses Legal Meals & Entertainment (50% deduction) SUPRA Keys Office Supplies Paper Ink & Cartridges Photography Postage/Freight/Delivery Printing (Non-advertising) Professional Fees Rent – Office Repairs & Maintenance Office Janitorial & Cleaning Computers Copier Payroll Expenses Staff (Gross Pay) Telecommunications Phone Line Cell Phone Answering Service Internet Line

Deductions / Expenses Utilities – Office Selling Expenses - Staging Taxes Payroll (FICA) Payroll (FUTA) Payroll (SUTA) Property Taxes - Office Annual Report Travel & Entertainment & Lodging Airfare Bus & Subway Bridge & Highway Tolls Car Rental Laundry Lodging (do not combine with meals) Meals (do not combine with lodging) Parking Taxi Telephone & Fax Charges Train Other

Deductions / Expenses Hire your children. If you need help in your business, consider hiring your children. The wages you pay will be deductible by you and taxable to your children in their presumably lower tax brackets. Wages paid to your children under age 18 are not subject to payroll taxes unless you operate a corporation. Hire your spouse. You can write off more expenses like cell phone, his or her computer, and more. Also, if your spouse accompanies you on a business trip for a valid business purposes, you can deduct his or her expenses along with your own. You may be able to set up retirement plans as well for your spouse.

Thank You! BJ Cottrell, EA, CAA Cottrell Tax & Accounting, LLC 5147 Castello Drive | Naples, FL 34103 ph: 239.449.4881 | fax: 239.591.2359 bjc@cottrelltax.com