Top 8 Tax Mistakes Real Estate Agents Make (and How to Fix Them)
Realtors Guide to Top mistakes to avoid during tax time
Many agents start out doing their own taxes — and honestly, that’s not always a bad thing; in fact, I encourage it! It helps you understand your business numbers and saves some money in the early years.
But after reviewing dozens of agent returns — from rookies to retirees — I keep seeing the same tax mistakes. These aren’t minor errors either; they often cost agents thousands in overpaid tax or missed deductions.
Here are the top 8 tax issues I see (and how to fix them).
1.
Not Knowing When to Itemize or Take the Standard Deduction
Too many agents default to itemizing because it “feels” more professional — but the math often says otherwise.
For 2025, the standard deduction is $15,750 (single) and $31,500 (married filing jointly).
If your itemized expenses — mortgage interest, property tax, medical bills, charitable donations — don’t exceed those amounts, you’re better off taking the standard.
I’ve seen agents lose money by forcing itemization when the standard deduction would have saved them more.
✅ Fix it: Always compare both totals before filing. Let the math decide, not the myth.
2.
Poor or No Mileage Logs
Mileage is one of the biggest write-offs for agents — but it’s also one of the most abused.
I see agents claiming 10,000+ miles a year with no log, or misunderstanding who can even take the deduction.
If you’re a Schedule C sole proprietor, you can deduct business mileage.
If you’re an S corporation, you can’t deduct it directly — the company must reimburse you using an accountable plan and mileage log.
✅ Fix it:
Use an app like MileIQ or QuickBooks Self-Employed, or track miles in a simple spreadsheet. Record start, stop, and business purpose. No log = no deduction.
3.
Choosing the Wrong Vehicle Deduction Method
There are two main ways to write off your vehicle:
Standard mileage rate (70¢ per mile for business in 2025)
Actual expenses (fuel, maintenance, insurance, depreciation, etc.)
Once you choose one method for a vehicle, you’re generally locked into it — and choosing wrong can cost you thousands.
Agents with high mileage usually benefit from the standard rate, while those with heavier, newer vehicles might save more using actual costs.
✅ Fix it: Run the numbers both ways early in the year and stick with what saves you more. Keep all receipts either way.
4.
Not Separating Business and Personal Expenses
Mixing business and personal money makes taxes messy — and expensive.
When income and expenses run through one personal account, agents often miss deductions or lose proof they need later.
✅ Fix it:
Open a dedicated business checking account (even if you’re a sole proprietor).
Deposit all commission income there and pay business expenses from that account. It’s simple, clean, and keeps your write-offs audit-ready.
5.
Delaying an S Corp Election and Overpaying Self-Employment Tax
This is one of the most significant tax leaks I see for agents earning $80K–$150K+.
As a sole proprietor, you pay 15.3% self-employment tax on all net income.
With an S corp, you can split income into:
A reasonable salary (subject to payroll tax), and
Distributions (not subject to self-employment tax).
✅ Fix it:
Talk with a tax pro once your net income hits around $80K+. The right timing on an S corp election can easily save $5K–$10K per year in taxes. Just make sure you use payroll software and choose the proper separation between reasonable salary and distributions.
6.
Not Setting Up Retirement Accounts
Many agents think, “I’ll do that later.” But later never comes.
A Roth IRA lets you grow money tax-free — a huge long-term advantage.
S corp owners can also establish their own Solo 401(k) or SEP IRA, which not only builds retirement savings but also reduces taxable income now.
✅ Fix it:
Even a small start counts.
Roth IRA: up to $7,000 contribution (2024)
Solo 401(k): up to $23,000 (plus $7,500 catch-up if over 50)
These add up fast — and your future self will thank you. Also, this is just an example; please consult your financial advisor on what's best for you, not just on taxes alone.
7.
Ignoring Quarterly Taxes (Until It’s Too Late)
If you earn commissions year-round, the IRS expects you to pay taxes as you go. Missing quarterly payments leads to late-payment penalties, even if you pay in full at year-end.
✅ Fix it:
Follow the Safe Harbor Rule — pay either:
90% of this year’s expected tax, or
100% of last year’s total (110% if income > $150K).
As a simple rule of thumb:
Under $100K gross: set aside 20–25% of each check.
S corp: closer to 30%, to include payroll taxes.
I had a CPA when I got started, extended my corporate tax return 2 years in a row (each filing season), and I (the idiot new agent) was not advised that I needed to pay CA tax properly. This caused me 3K in penalties, which I had to figure out quickly to avoid more fees.
8.
Believing You Can Be “Audit-Proof”
There’s no such thing as zero audit risk — sometimes it’s just random selection.
But solid documentation and consistent systems make audits a non-issue.
✅ Fix it:
Keep receipts, maintain logs, and file clean returns.
The IRS can question your deductions, but they can’t argue with good records.
💡 Final Word
If you’re still handling your own taxes, that’s okay — it’s a great way to learn your numbers, and most agents, who are not capping, I think, should do their own if they are comfortable doing it.
But as you grow, those small mistakes compound. Clean books, proper setup, and proactive planning can mean the difference between breaking even and keeping thousands more every year.
I help agents do exactly that — from tax prep to entity strategy and quarterly tax plans — all designed for people who live off commissions.
Helping families and agents keep more of what they earn.
📞 Ready to stop guessing on your taxes?
Let’s build a tax plan that fits your business and cash flow.
Disclaimer: For educational purposes only. Not legal or tax advice. Consult your own professional before making tax decisions.