It might seem a bit early to be talking about tax time, but the reality is it’s never a bad time to be proactive about making sure your income is moving in the right direction.
For self-employed professionals, it’s especially important to be on top of that 24-7-365.
It won’t be long before forward-thinking agents will be preparing their business plans for 2025. And strategies for saving money (without a disproportionate sacrifice of time) are always in season.
Yet, as the folks at Formations know all too well, “the tax system is not designed for the self-employed to succeed.”
The Formations 2023 Self-Employed Tax Savings Report highlights some of the unique challenges and opportunities for real estate professionals.
From the report:
“The self-employed don’t get the same benefits as either a corporation OR a W2 employee. They don’t have the resources or tools that even a five-person small business has access to, and as a result, they waste countless hours and tens of thousands of dollars each year, adding stress and back office work that keeps them from doing what they set out to do in the first place; run their business.”
Shahar Plinner, Formations founder and CEO, has been a tax professional and tax firm owner for 20 years serving self-employed professionals. With him at the helm, the Formations team has saved their customers an average of $15,000 to $20,000 a year.
The year 2023 was a difficult one for real estate professionals. That said, savvy agents still managed to maximize their tax savings.
You can download the full 2023 tax savings report here. Read on for some of the highlights.
Highlights from the 2023 Tax Savings Report
The year 2023 was a particularly challenging one for real estate agents, mainly due to market conditions that made it more difficult for many to meet transaction goals:
- High mortgage rates (peaking at 8% in August)
- Historically low housing supply
- Rising home prices that compounded affordability challenges for prospective buyers
- Economic uncertainty
The average tax savings for real estate professionals totaled $13,728 in 2023, which is 2.9% below the Formations report average. Based on its analysis of the average tax savings by strategy, the biggest savings for agents come from filing as an S-Corporation.
Unfortunately, many agents don’t realize this option can save them an average of $8,776 a year on their self-employment taxes.
Other strategies and their average tax savings for real estate agents in 2023:
- Retirement tax savings: $3,377
- Healthcare deduction: $1,257
- Business use of home: $1,053
- Auto deduction: $949
- Tax software deduction: $560
- Other expenses: $2,597
Therein lie the five key strategies for maximizing your tax savings as a real estate agent in 2024:
- Maximize your auto deductions—Considering how much time you spend in your vehicle, being meticulous with your business mileage can put nearly $1,000 back in your pocket every year.
- Leverage S-Corp benefits—Filing as an S-Corp can significantly reduce your tax liability by allowing you to bypass the mandatory 15.3% self-employment tax.
- Don’t neglect retirement savings—Just 36% of real estate professionals use this strategy (a lower share than other industries), but the benefits are twofold: #2, you put your capital assets to work for you, but #2, filing as an S-Corp allows you to save for retirement pre-tax.
- Home office deductions—For anyone working from home, home office expenses can be worthwhile to track for an annual write-off.
- Healthcare deductions—In 2023, real estate agents saved an average of $1,257 a year by claiming their healthcare coverage.
If you’re looking at the above list and you’re not sure how to take advantage of some (or all) of them, you’re not alone. This is why, as you’ll see in the full report, $220 billion in taxes are (over)paid each year by the 68 million self-employed professionals in the U.S.
To say that’s appalling is an understatement. But considering 75% of self-employed professionals do NOT have a financial plan in place, it starts to make sense.
So, how do you make sure you’re not overpaying by tens of thousands of dollars a year? You work with a trustworthy tax professional whose services fit your budget—and help you grow it year after year.
Enter Formations.
Make the Most of Your Tax Savings
The folks behind Formations started the business with the primary goal of helping self-employed professionals keep more of their income every year.
BAM and Formations go way back, starting with a series of webinars starting in December 2022, the first of which we covered in a blog on the three financial systems every agent should set up now.
If you haven’t read that yet, check it out, along with—
- “Smart Financial Habits for Real Estate Agents”
- “Do You Have a Retirement Plan?”
- “Maximize Your Return: Tax Filing Strategies for Real Estate Professionals”
For more information, check out the Formations website and block out five minutes to watch the explainer video. Click on “Get Started” to learn which plan is best suited to your business and the costs involved. You can make changes at any time.
