View Padgett President Roger Harris' congressional testimony on the impact of the Corporate Transparency Act and the BOI reporting requirements here.
Like most busy real estate agents, you’re probably focused on keeping a sharp eye on the market, serving your clients, finding new ones, growing your listings, closing deals, and managing your own finances. Your federal, state, and local tax responsibilities probably aren’t top of mind until filing time rolls around.
Fair enough, but implementing year-round tax-saving strategies can help you avoid negative — and often surprising — tax consequences such as unnecessarily high tax bills and costly penalties. And that’s good for both you and the continued success of your business.
Effective tax planning for real estate professionals is critical.
According to the Association of Real Estate License Law Officials (ARELLO), more than 3 million people hold active real estate licenses in the United States. That’s a lot of folks out there showing properties and making deals!
More than likely, however, precious few of them have tax expertise. That’s where we come in. Whether you’re an independent contractor or own an agency, you’ll benefit from engaging an outside tax professional who deeply understands tax planning for real estate agents.
Padgett is here to help. We specialize in providing high-quality tax planning for real estate professionals of all types and specialties — including residential, commercial, industrial and land.
The tax professionals at Padgett bring extensive experience and expertise to the real estate industry, including help with:
Preparing tax returns and IRS forms
Naturally, come tax time, we can prepare federal, state, multistate, and local returns — whether for you personally or your real estate agency. But we also provide a broad array of other tax services for real estate professionals that can help you year-round with a variety of other filing requirements.
For example, if you engage any independent contractors (such as other agents, photographers or videographers, staging professionals, home inspectors, and marketing service providers), you generally will have to file Forms 1099 for them. If you own a real estate agency structured as a partnership, limited liability company or S corporation, you’re required to file Schedule K-1. If your agency has employees, you must comply with federal and state payroll tax requirements. Finally, depending on your situation, you may need to make estimated tax payments.
Let us help you with these tasks!
Planning long-term tax strategies all year round
When it comes to taxes, procrastination can be costly. Minimizing tax liability generally isn’t something you can do at the last minute when filing your tax return. To reduce taxable income, and successfully claim all the deductions and credits you’re entitled to, you’ve got to plan ahead.
Of course, we recognize that tax planning for real estate agents isn’t easy when you’re busy monitoring your local market, tracking inventory, finding and interacting with clients, setting up and adjusting your schedule of showings, and, last but not least, closing deals! So don’t go it alone — we can work with you throughout the year to refine your recordkeeping and tax accounting so that you’re able to take advantage of every available tax break.
In addition, just as properties are coming on and off the market all the time, tax rules, regulations and the law itself are constantly changing. Why worry? As providers of small business tax services, we stay on top of all the latest legislative developments and IRS guidance, as well as changes at the state and local levels, so you can stay focused on your market, inventory and clients. When tax-related risks or opportunities arise, you’ll be the first to know!
Assisting with a tax audit
Unfortunately, real estate professionals aren’t immune to tax audits — whether at the hands of the IRS or another taxing authority. We’ll do everything in our power to minimize your likelihood of being audited, but, if it comes to pass, we can guide you through the process and help minimize negative outcomes.
Properly allocating start-up expenses
Maybe you’re just starting out as a real estate professional or gearing up to launch an agency. If so, you may incur several types of “pre-opening expenses.” These expenses are incurred during the period before a new business is up and running and earning revenue.
Special federal income tax rules apply to different types of costs, and special tax return elections may be necessary to get the best treatment for your expenditures. Our tax services for real estate agents include specialized advice for start-ups, so you can manage your tax liability.
Choosing or changing business structure
Whether launching a new agency or operating an existing one, your choice of business structure has serious tax implications. It may even lead you to suffer unexpected negative tax consequences.
As part of our tax advice for real estate professionals who own agencies, we can assist you in evaluating the pluses and minuses of sole proprietorships, partnerships, limited liability companies, S corporations, and C corporations, so you make the most advantageous choice. If a change is in order, we’ll be there to guide you through the process.
Welcoming new partners
If your real estate agency is structured as a partnership and a new partner is buying into the business, an election can be made that might ultimately save some tax.
This often-complex strategy deals with the tax basis of a partner’s share of the business’s appreciated assets. As part of our wide-ranging tax advice for real estate professionals, we can determine whether such a move would be beneficial and, if so, assist you in making the election.
Making lemonade out of lemons if you have a net operating loss
Sometimes real estate agents or agencies operate at a loss initially. It’s never a good thing but, under the Internal Revenue Code, qualifying businesses and independent contractors can carry forward net operating losses to future years to offset up to 80% of taxable income in those years, thereby reducing their overall tax liability. The rules are complex, but we can show you the way.
Preparing for your retirement, and helping employees with theirs
Many Americans intend to work longer into their lives. According to a 2022 study by the Center for Retirement Research at Boston College entitled “How to Think About Recent Trends in the Average Retirement Age”, the average retirement age is 64.7 for American men and 62.1 for American women. Of course, many real estate agents choose to work well beyond that, given the benefits that wisdom and experience can bring to such a competitive industry.
That means many real estate agents will have a substantial nest egg and continuing income during retirement. Meanwhile, younger agents have a great opportunity to amass retirement savings over time. Whatever your situation, we can help you determine the best way to take advantage of available tax breaks to effectively manage your money.
In addition, if you own an agency, you may have staff members who also want to save for retirement in a tax-savvy manner. Sponsoring a qualified retirement plan can be a great way to attract good employees and retain them. We can advise you on the tax benefits associated with the various retirement plan options available to businesses such as real estate agencies.
Managing buyout and succession planning issues
Planning for retirement may also raise issues such as partner buyouts and succession planning. If you’re one of multiple owners of a real estate agency, you may have to make payments to owners who retire or leave the business for other reasons (such as disability or death) to liquidate their ownership interests.
A buy-sell agreement drafted by your lawyer can spell out how ownership interests will be transferred when an owner departs. The structure of the buyout can have major tax implications. We can advise on the tax consequences of various options so you can factor them into your structure choice.
If you’re the sole owner of an agency, you’ll have other succession planning issues. Maybe you want to gift or sell ownership of the business to a child or other family member who’s ready to take over. Or you might choose to sell to another real estate professional, an investment group, or a major national or regional group. There will be a tax impact to any route you take. Let us be your co-pilot.
At Padgett, we understand the complex Internal Revenue Code inside and out. Tax law is constantly evolving with new legislation, regulations, IRS guidance, and inflation-adjusted changes. We stay on top of these developments as well as proposed tax law changes in Washington in order to help our clients plan for the best possible outcomes in the future.
Whether you need small business tax services for yourself as an independent real estate agent, tax strategies for your agency as a business owner, or other tax assistance, we’re here to help. Padgett Advisors takes the worry out of daunting IRS and state tax responsibilities with our tax services for real estate agents and agency owners so that you can concentrate on your clients, your market and listings, and your own financial security.
Contact us today to discuss how we can help with tax planning and compliance for you and your agency if you own one. (We also offer extensive accounting services for real estate professionals to provide for your other financial management needs.)
