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The average agent throws thousands of dollars away each year due to costly tax mistakes. Many of these mistakes are a lot more common than you might think. In fact, there’s a good chance you’ve made at least a few of them yourself.
Tax expert and CPA Craig Cody recently shared 10 of the most common tax mistakes made by agents with Pat Hiban.
Read on to learn what these mistakes are to ensure you’re able to save as much money as possible when you file this year’s taxes.
For information on the deductions that save agents the most money and a few of Cody’s unique tax strategies, listen to the podcast below.
10 costly tax mistakes to avoid this year
Failing to plan
Procrastination isn’t one of the traits top agents share. You can’t walk into your accountant’s office in April and expect him or her to save you much money if you haven’t done any planning. The most effective tax strategies require thought and time.
Filing in fear of an audit
Stop worrying about getting audited. If you follow tax regulations and keep detailed financial records, there’s absolutely nothing wrong with claiming deductions and minimizing your taxes.
Operating as the wrong type of business entity
The type of business structure you select will impact your income tax.
Certain factors, such as team size and earnings, will determine which type of business entity you should select to save the most on taxes.
Consult with a tax professional to find out which structure will suit your needs best.
Choosing the wrong retirement plan
As with selecting a business entity, selecting a retirement plan is highly dependent on your work situation.
Your team size and tax bracket are two factors to consider carefully when selecting a retirement plan as they often have the greatest impact on retirement strategies.
Not hiring family members
Does your kid need a summer job? Hiring him or her yourself can save you tons of money come tax time.
If he or she is enrolled in private school, paying tuition from his or her personal account with the money he or she earned working for you can reduce Social Security tax.
Missing out on medical benefits
If you haven’t set up a Medical Expense Reimbursement Plan (MERP), you’re missing out on the chance to write off out-of-pocket medical expenses.
Covered expenses include insurance co-payments, dental work and more.
Not taking the home-office deduction
If you have a home office, the home-office deduction can save you quite a bit of money.
As long as you follow tax regulations and track expenses, you have nothing to worry about in the event of an audit. Besides, despite common belief, the home-office deduction is not an automatic red flag.
Choosing the wrong deduction for car and truck expenses
Getting the biggest tax deduction for your vehicle usage is a no-brainer.
You can calculate the cost of operating your vehicle with either the actual-expense method or the standard-mileage method.
Compare both options, and select the one that offers the greater tax benefit in your situation.
Not tracking and deducting meal and entertainment expenses
Nearly all agents take clients out for meals occasionally, but only some track these meals as business expenses.
Here’s a trick for tracking these types of expenses almost effortlessly: pay for them all using a credit card obtained for this purpose exclusively.
Not hiring a tax professional
Taxes are complicated; doing them yourself to save money will likely cost you in the long run, especially if you don’t have the patience to research regulations and tax options thoroughly.
Paying a CPA to help with your taxes is almost always a smart investment.
For more tax strategies and additional details on the 10 costly tax mistakes covered in this article, listen to the complete podcast with Craig Cody.
Pat Hiban is the author of the NYT bestselling book “6 steps to 7 figures: A Real Estate Professional’s Guide to Building Wealth and Creating Your Destiny,” the founder of online real estate sales training site Rebus University, and the host of Pat Hiban Interviews Real Estate Rockstars, an agent-to-agent real estate podcast with Hiban Digital in Baltimore, Maryland. Follow him on Instagram and Twitter.
Email Pat Hiban
The views and opinions of authors expressed in this publication do not necessarily state or reflect those of WFG National Title, its affiliated companies, or their respective management or personnel.