You may be able to claim ordinary activities or purchases as a cost of doing business.
Anaheim, Calif. – There are three actions you need to take with your money: “Earn, keep and grow. Earn and keep more so you can invest it for growth,” said CPA and real estate tax strategist Gregory Antipoff during a session at NAR NXT, The Realtor® Experience.
He said he’s often asked whether something is tax-deductible — and that’s the wrong question, he says. What’s deductible for one practitioner may not be for another, he added. “The better question to ask your financial adviser to maximize the things you can deduct is: How do I make this tax-deductible?”
Antipoff cited the example of a real estate agent who bought a new house and wanted to buy a tractor to clean up the yard. The agent asked Antipoff if the tractor was deductible. As a binary question, the answer is likely no, Antipoff said. But if you use that tractor as an additional service for your clients to help them clean up their yards, improve their curb appeal and ultimately get more referrals, then you may be able to deduct a percentage of that tractor, Antipoff said.
Similarly, he had an agent ask him if a 3D printer was deductible. It might be if you use it to print a model replica of a buyer’s new home as a closing gift. “Don’t run out and spend on things you don’t need,” Antipoff advised. “But if you’re investing in something you need, you [might be able to] get a tax deduction along the way.”
Business expenses are deductible if they meet two IRS tests: ordinary (commonly acceptable in the industry) and necessary. For example, purchasing leads is both common and necessary; you can’t practice real estate without leads.
Antipoff shared a few other examples of questions he’s received and the strategic answers:
Is getting your hair, makeup and nails done deductible? “At least once a year, you should update your business photo,” he suggested. “So, once a year, you can get your hair and nails done for the photo shoot. That day might happen to align with a wedding or date night,” Antipoff said. But, he added, “be careful about how aggressive you get on this strategy.”
What if your children help with your business, such as by filing paperwork or assisting at open houses? “When you pay your kids and the money goes into their account, you can take a deduction,” Antipoff said. And your kids get the money tax-free because the standard deduction for 2023 is $13,850. “You’re delegating tasks so you can be more efficient, make more money and get a business deduction for that.”
What about tax deductions for vacation travel? It depends on what you do on your trip, Antipoff said, and how you structure those days. Just responding to email isn’t going to cut it. However, Antipoff offered this scenario: If you fly out on a Thursday, a business day, in the evening, those travel expenses could be tax-deductible under IRS rules. Then on Friday, if you participate in a mastermind group for a half-day, or four hours, then under IRS rules, that half-day may be deductible. On Monday, you visit your franchise office for a half-day to build referral relationships—another potential travel deduction. Additionally, if you work in the same geographic place on Friday and Monday, your weekend expenses may also be tax-deductible.
© 2023 National Association of Realtors® (NAR) Christina Hoffmann