The first and most important thing to note, before getting into some of the items that realtors can deduct for tax purposes, is that you must track, and keep evidence (receipts) for all of your expenses. As we have noted in the benefits of Cloud Accounting, there are many options for accounting software that may help you track expenses and keep soft copies within the software, getting rid of the paper receipts.
Moving on to some items that you should know are deductible:
1. Car Expenses
Real estate agents are always driving clients around for showing, and driving to meet clients to sign paperwork, going to open houses, and more. The good news is that all of this driving is tax deductible.
There are two methods for car expenses, you can either use the detailed method, where you need to track all of your expenses and keep receipts, or the simplified method, which is a rate per kilometer driven. Note that with the simplified method you still need to keep your receipts in case of audit, as the CRA may ask for some proof to substantiate your deduction. We strongly recommend that you work with a Chartered Accountant to determine which method will be optimal for you. More can be found on the CRA website with regards to vehicle expenses here.
2. Home Office Expenses
Often real estate agents work out of a home office, as they may be self-employed, and thus the home office and related expenses are tax deductible.
Please note that if you have a home office, the CRA is now becoming more strict with these deductions, and in the case of audit, may request that you provide proof that your home office is your primary location for doing business and meeting clients.
It is important for you to know that home office expenses that are deductible for tax purposes would include the proportion of expenses related to your home that is equal to the amount of space that the office takes up within your home (i.e. how many square feet the office is out of the total size of your home). This would make a portion of your property tax bill, and other utility and maintenance costs deductible as well.
More details can be found on the CRA website by clicking here.
3. Meals and Entertainment
As real estate agents, it is often important to network and build rapport with your clients, or potential clients. This is especially true in 2015 as the number of realtors has grown significantly, and the competition is steep.
The good news is that 50% of all client related expenses for meals and entertainment will be tax deductible for you. Note that this amount needs to be reasonable, and you should not only keep the receipts, but also keep track of who you went with; this can be important in case of an audit.
4. Advertising Expenses
Advertising these days can be quite expensive. All of these expenses are tax deductible for real estate agents, such as Google and Facebook ads, local newspaper ads, Yellow Pages ads as well as billboards and bus-bench ads. Ensure you keep all of your receipts for advertising as this is likely a large expense that you will be claiming.
5. Office Expenses and Supplies
Of course it seems obvious that any supplies used to do business, such as pens, paper, printer ink, etc. are deductible for tax purposes. Included with this would be magazine subscriptions, and things of that nature.
Additionally, office expenses such as desk fees, rent, cleaning services and maintenance, etc. would all be deductible.
Of course, there are many other potential items that may be tax deductible for you as a real estate agent. It is important to stay within the guidelines that the CRA has set out for you. We recommend that you discuss potential deductions with a Chartered Accountant to maximize tax savings and decrease your risk of future issues with the CRA.
For any specific questions please call or email us.