Dollars and Sense: 3 tips that'll make tax season a breeze

In this recurring column, Inman hosts various contributing writers who share personal and business finance insights they’ve picked up throughout their careers to help agents and brokers stay financially fit. 

It’s the time of year for cooking, shopping, entertaining and all of the fun things that make the holiday season exciting. But look there, just over the horizon! It’s tax time! It’ll be here sooner than you know it.

If you’re one of those people who always feels that you’re caught unprepared, this is the time to put together a plan. An afternoon of preparation could streamline your 2019 tax process and leave you breathing easier once April 15, 2020 rolls around.

1. Get organized

One of the most important things to do as you prepare for tax season is to get organized. You’ll need a way to organize both your digital records and your paper records.

You’ll start to receive tax records from your mortgage company, student loan servicer, brokerage and other entities just after the first of the year, so label a file folder, basket or shoebox, and put all tax-related documents there when you separate the mail.

Create a spreadsheet where you can categorize income, expenses, investments and other items that you’ll need for tax season. Differentiate between different types of expenses because different rules apply.

You’ll want to differentiate between personal expenses (your home mortgage, medical expenses, student loan interest) and professional expenses (marketing, closing gifts, travel, office expenses). You can use one spreadsheet with different columns or one file with a number of different sheets.

One of the most important ways to facilitate organization is by labeling carefully, adding notes and color coding your system.

You may want to use:

• One color for personal expenses and another for business
• Different colors for different types of deductions
• Different colors for different investment properties and related expenses
• Color-coded files for various types of income and related expense documents

It might seem like overkill, but the more organized you are at this point, the easier it will be to both prepare your taxes and find information if you need it for your tax preparer or an auditor.

2. Tackle deductions

One of the most important things you’ll need to put together is your spreadsheet of tax deductions. These can have the biggest impact on your bottom line, so it is essential to ensure that you have carefully recorded and documented every dollar.

The following items are considered deductible expenses (subject to limitations):

• Business travel
• Business meals
• Closing gifts ($25 limit for each, though branded gifts may be eligible for the full cost as a marketing or promotional item)
• Commissions paid to other agents
• Conferences, trade shows and seminars
• Contract labor (virtual assistant, graphic designer, content creator)
• Education and training products and opportunities
• Employee wages
• Home office and home storage
• Insurance premiums including health insurance (if self-employed) and E&O
• Legal and professional services and fees
• Marketing expenses
• Membership in professional organizations
• Mileage and vehicle expenses
• Office rent or desk fees
• Office supplies and expenses
• Postage
• Retirement plan contributions
• Self-employment tax
• Subscriptions to professional publications

To ensure that your travel and other business expenses will be allowed, be sure to include notes for the following:

• The date of the expense
• The amount of the expense
• The place of the expense
• The purpose of the expense
• The professional relationship involved

Again, you will not need to include this information in your tax filing, but you will need to have it to justify the expense in case of a question or audit by the IRS.

As to the other big deduction, the home office, there are two possible ways to calculate the expense. A home office can be calculated as a percentage of:

• The finished portion of the home
• The total square footage, including both finished and unfinished spaces

You may choose to base your home office expenses on the total square footage if, for example, you use your garage or a storage space in your home exclusively to store paper copies of your records, staging items, signage and other things that are directly related to your business.

Try calculating both total square footage and finished square footage and see which ratio gives you the biggest bang for your buck.

3. Consider last-minute adjustments

If you are anticipating a large tax payment this year, you might want to help offset your tax burden with some small adjustments to reduce the amount you owe. These can include:

• Taking a continung education or GRI class
• Making a charitable donation
• Maxing out your retirement giving
• Paying for marketing materials or promotions
• Purchasing office-related items
• Renewing professional subscriptions or memberships
• Selling investments that have lost value
• Making an extra mortgage payment
• Deferring bonus or commission payment until January

As always, discuss all of your possible tax strategies and options with your CPA or tax adviser.

Your role is to maximize organization so that your tax preparer can ask the right questions, find the right information and help you get every penny that you deserve. You don’t have to be an accountant to put together a winning strategy for tax time.