Every hundred dollars a Real Estate Agent finds in deductions saves up to forty dollars in federal and state tax! If you’re a dollar-minded agent and believe you can spend your hard-earned dollars more effectively than the government, it’s essential that you learn what is and is not deductible on your tax return. This article comes from our Real Estate Agent Tax-Cut Library and discusses one of the most significant deductions available to Real Estate Agents: The Advertising Deduction.
The advertising deduction encompasses a broad range of expenses a Real Estate Agents incurs to promote themselves and the properties they sell. Advertising expenses, like any expense, must be Ordinary and Necessary for your business to be deductible. Ordinary advertising expenses are those which are common and accepted in the field of real estate sales. The dollar value of such expenses must also be reasonable, given the nature of your business. Necessary expenses are appropriate and helpful in the sale of real estate. They are purchases that benefit your business - investments that find clients and help you close deals.
Intention Matters: When determining whether a purchase is deductible (ordinary and necessary) ask yourself “why” you made the purchase. The reason you made the purchase is a good gauge of its deductibility. When you make a purchase to help your business (even if it later proves not to), it’s deductible. If, on the other hand, the truthful reason for the purchase is something different than benefitting your business, you may have a tough time proving your deduction to the IRS.
Asking yourself “why” you made a deductible purchase will also help you to categorize it properly. Purchases that educate the public about you and your services promote a listing, find customers, or make these processes more effective are deductible as Advertising Expenses.
Common Agent Advertising Expenses: As mentioned above, advertising encompasses a broad range of expenses related to promoting yourself, your business, and your listings. It includes everything from print media, to signage, to open houses, to designing your website. Below are some advertising expenses common to Real Estate Agents. I have listed them to help you maximize your deductions. They may even spark a new marketing idea! I have also included some deductions that seem like advertising but are deductible as a different expense and a few warnings to avoid raising IRS eyebrows.
- Advertising in publications
- Ads on Facebook, Google, twitter, etc.
- Names and emails lists
- Listing fees for websites such as Zillow, Realtor.com, etc.
- Brochures & Flyers promoting your business
- Signs and stands for signage (if the sign is permanent or designed to last more than one year it may need to be depreciated)
- Radio & TV commercials
- Public relation fees
- Fees paid for web hosting, design, maintenance, or promotion
- Billboard design and rental
- Professional fees related to the design and staging of homes for sale
- Graphic design fees
- Banners for open houses
- Rental fees for booths at home shows and conferences to promote your business or listings
- Cosmetic costs related to the upkeep of properties for sale such as mowing, raking leaves, decorative flowers, etc. Note: Some may argue that such costs are repair and maintenance costs, but I would counter with your intent in performing or paying for this service.
- Design costs related to logo, business cards, and stationary (interestingly, the cost of the business cards and personalized stationery are technically not advertising expenses – they are deductible as supplies).
- Branded promotional items such as pens, calendars, keychains, coffee mugs, and tote bags. Note: The cost/value of giveaway branded items is limited and may be considered gifts, which have additional limits and reporting requirements.
- Prizes for Raffles and other contests (note there are limits, please read the article linked above)
- Cost of being in a parade or a booth at the county fair to promote your business
- Mass mailing costs including postage
- Fees for newsletter services such as MailChimp
- Network group fees (may also be a Dues and Subscription deduction but, again, I would argue intent)
- Open house costs, including decorations, activities, promotion, refreshments, and food (within reason)
- Promotional contributions to create goodwill such as sponsoring a little league
- Sign magnets for vehicle
- Cost of painting or wrapping a vehicle with a logo. Note: Wrapping a car does not make the vehicle deductible.
- Clothing with logo (deductible but, NOT as an Advertising expense – they’re deductible as Supplies or a Uniforms under Other Expenses). P.S. Be reasonable - Outfitting your entire wardrobe with logos to get a massive deduction probably won’t be considered ordinary and necessary by the IRS!
- Labor for sign placement. If you pay someone to place signs directing them to a promotional event, a listing, or an open house, these fees are deductible as advertising. Just remember: If you pay an individual or business over $600 during the year, you may be required to send the payee a Form 1099-MISC. For more information read our article Form 1099-MISC Noncompliance (Can Literally Destroy Your Business).
Proving Your Deductions: It’s not enough to spend money on advertising to claim a deduction. You must be able to prove (the tax-term: substantiate) your deduction if and when the IRS requests. It’s the taxpayer’s responsibility to substantiate their deductions, not the IRS’s job to prove you weren’t entitled to it. The IRS deduction formula is pretty simple: No Proof = No Deduction. For an easy deduction-tracking method, check out our article, Proving Your Deductions, Easy Recordkeeping for Real Estate Agents.
Summary and Invite: We hope this article has helped you understand some standard advertising deductions available to Real Estate Agents. If you’d like to learn more about cutting your most significant expense, TAXES, check out our Real Estate Agent Tax Cut Library. The Real Estate Agent Tax Cut Library includes over eight hours of video broken into twenty-nine searchable volumes and covers every possible deduction a Real Estate Agent can take on their tax return. Our Broker Version will help your entire agency cut their taxes! We also invite you to browse our courses.