Tax Write Off’s for Real Estate Agents (Canadian)
It’s the most wonderful time of the year! Tax season is here again and for most real estate agents, this turns into utter panic. A mess of receipts, a lot of coffee (or wine) and very possibly a few curse words. Although this post is not centered around helping you be more organized it will help you understand what you are eligible to “write off” or claim towards your income tax to save you a lot of time, and hopefully a little money.
TAX WRITE OFFS FOR REAL ESTATE AGENTS
The first thing you have to understand is what a “write off” is. It is a slang word used, or should I say OVER USED in the business income tax world. Writing something off means, you claim it as an expense. It is something you need in order for your business to function, therefore the money was spent so you could earn and it reduces the amount of income you claim. Ultimately reducing the amount of tax you pay.
There is a huge catch to this. Write offs must be related to your business and allowable. That’s where confusion can set in.
Here are a few of the most common ones to get you started.
As a real estate agent you need a vehicle. In most provinces in Canada this is a requirement to be licensed. There for this is most certainly a tax write off. But be careful. There is a ton of mis-information out there about how much of your vehicle you can write off and is it the gas or the kilometers. As for how much, it’s the amount you use of the vehicle for actual work. It’s not likely you have a separate car for work and for pleasure so it is important to keep track and keep it separate. That is why kilometers may be your easier option. Speak with your accountant first before making that decision though. There are other eligible deductions you can claim that have to do with transportation to consider as well.
Loans and interest
Repairs and maintenance
Licenses and Registration
Parking and tolls
Again, there will only be a portion of this allowable provided the vehicle isn’t dedicated 100 percent to your business. Keeping good records is essential with this. There are an abundance of apps out there to help. We recommend MileIQ. You could always go the old school method and keep a log book. Whichever method you choose you should hang on to all receipts, invoices and statements. Keeping them in your vehicle in an envelope of file folder will help you to remember while it’s fresh on your mind after you have filled up with gas and so on.
Licensing and Fees
Fees for licensing are tax deductible. They are a necessary expense to remain licensed and to trade in real estate. These include board dues, dues to other governing bodies, registration fees and insurance. These are separate from any fees you pay to you brokerage for commissions earned.
The compensation fees you pay to your brokerage whether it is percentage based or flat fee is tax deductible. All brokerages will keep detailed records of this and can provide you with reports as needed. It is a good idea to keep your own records as well. Administration and office processing fees would also be under this umbrella. If there are certain things such as training or marketing and advertising you have billed through your office, you shouldn’t blend them in as brokerage fees here. Each deduction has a different value or sliding scale as viewed by CRA so it is important to put each item in it’s appropriate category to avoid penalties of providing inaccurate information.
Office Supplies and Equipment
This can and does include items such as computers, laptops, tablets, lock boxes, printers, paper and ink. Any type of supply that is used or your business qualifies. Some of these items can be amortized over time so it is important to keep receipts, invoices and statements so they are properly allocated and accounted for. If you have purchased a computer for example that is also used for personal use, maybe your family or another business, you must also make note of this as well.
This is a very important deduction to pay attention to. As real estate agents, we quite often work mostly from our homes. A percentage of that use can be tax deductible. It is important to know the square footage of your home and the percentage of it that is used for your home office. Along with this you can write off a portion of hydro, tax, phone and internet. Provided it is within reason and being used for work purposes. Keeping records of all of these will help when claiming your income tax.
Other Commonly Forgotten Tax Write Off’s
Not commonly thought of or properly recorded are equally as important and can save you a ton in tax as a real estate agent.
Client related expenses
Such as lunch meetings, gifts or rebates.
Telephone and Internet
Professional Services and Fees
You must pay accountants or bookkeepers to keep good records and file your taxes timely and accurately. These fees are all tax deductible.
This is over and above regular travel with your vehicle to and from appointments. This type of travel could be for out of town conferences and training, travel related to relocation clients are out of town clients. Things of that nature. Deductible items would include accommodations, train or air fares. You would need detailed documentation that the travel was work related. Keep itineraries and all receipts for good measure.
Office rent or trade show booth rent.
Marketing and Advertising Fees
Continuing Education, Conferences and Seminars
Wages to Employees
Now that you know most of what you can write off as a real estate agent, let’s discuss the things you cannot write off. Because believe me, there are a ton of things I have heard realtors ask about or try to write off in the past that are absolutely not deductible.
A Hair Cut
The argument here is that as a professional you need to look the part. A fresh hair cut should for certain be a part of your business plan. Looking clean and fresh will help you obtain and retain clients however the government does not see this as a necessary business expense therefore sorry, not a write off.
Again, not an expense related to business. Same principals as a hair cut. Necessary, but not a necessity.
Child care is a deductible income expense for everyone in Canada who is eligible. This does NOT however fall under the category of business write off. Depending on your tax bracket you will see deductions for this but not likely as a part of your business expense claim.
The rule of thumb for tax write offs for real estate agents is to always make sure your expenses are ordinary and necessary. By ordinary I mean you are writing off your every day vehicle as your business transportation not your collectible Ferrari. By necessary I mean no sneaking home appliances in as a gift, if you know what I mean.
I hope this post was helpful. Please take a moment and share with someone you think may need it.
Please note we are not affiliated nor do we receive any compensation for any of the products or services mentioned in this blog post.
Please remember to always consult an accounting and tax professional before modifying any of your income tax preparations and plans