Self Employed Real Estate Agent Help


R

runtwoday

My son and daughter-in-law file a joint return. In Oct. 2007 she
received her real estate license and works as an independent
contractor/agent for a local broker. Please help with the following
questions or correct my assumptions if they are faulty.

1. She is not an employee of the broker so I assume that makes her self
employed and must complete Schedule C.
2. What is the correct business code for a real estate agent. I can't
find anything that really fits.
3. She rents space in the brokers office and has recurring business
expenses, advertising, telephone etc. I assume these are deductible on
her Schedule C.
4. Can she take a 179 deduction for startup expenses like her business
computer, cell phone, office furniture etc.?
5. She uses her vehicle for both business and personal and has kept
careful records. Is taking the mileage allowance easier or more
beneficial then actual expenses?
6. Is the cost of her real estate school and license a business expense
or a lifetime learning credit?
7. Since she started her business late in the year (October), she did
not make a sale and consequently had no business income in 2007. Can her
business expenses be deducted from her joint account with her husband
who did have income over $100K?

Sorry for so many questions but I appreciate any and all help from the
experts.
 
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A

Arthur Kamlet

My son and daughter-in-law file a joint return. In Oct. 2007 she
received her real estate license and works as an independent
contractor/agent for a local broker. Please help with the following
questions or correct my assumptions if they are faulty.

1. She is not an employee of the broker so I assume that makes her self
employed and must complete Schedule C.
Correct.

She is a Statutory Nonemployee. She files Schedules C and SE.
2. What is the correct business code for a real estate agent. I can't
find anything that really fits.

If you don't like 531210 Offices of Real Estate Agents & Brokers
how about 531390 Other Activities Related to Real Estate

3. She rents space in the brokers office and has recurring business
expenses, advertising, telephone etc. I assume these are deductible on
her Schedule C.

Yes. A good log of phone calls is recommended.
4. Can she take a 179 deduction for startup expenses like her business
computer, cell phone, office furniture etc.?

You realize Sec 179 expenses cannot exceed total earned income?


And a cell pone used to be, maybe still is, Listed Property.

5. She uses her vehicle for both business and personal and has kept
careful records. Is taking the mileage allowance easier or more
beneficial then actual expenses?

Most real estate salespeople put on humongous mileage and
find that swamps ou the actual expenses.

6. Is the cost of her real estate school and license a business expense
or a lifetime learning credit?

Her first license is not a buiness expense. If the school was
an "eligible educational institution" as defined in IRS Publication
970 as qualifying for loans from the Dept of Education, she can
probably qualify for an education credit or deduction.

7. Since she started her business late in the year (October), she did
not make a sale and consequently had no business income in 2007. Can her
business expenses be deducted from her joint account with her husband
who did have income over $100K?

Was she ready, willing and able to work with clients last year? If so,
she was in business even if not fortunate enough to generate income.
 
F

Frank S. Duke, Jr.

My son and daughter-in-law file a joint return. In Oct. 2007 she
received her real estate license and works as an independent
contractor/agent for a local broker. Please help with the following
questions or correct my assumptions if they are faulty.

1. She is not an employee of the broker so I assume that makes her self
employed and must complete Schedule C. Most likely
2. What is the correct business code for a real estate agent. I can't
find anything that really fits.
How about 531210, Offices of real estate agents and brokers.
3. She rents space in the brokers office and has recurring business
expenses, advertising, telephone etc. I assume these are deductible on
her Schedule C. yes
4. Can she take a 179 deduction for startup expenses like her business
computer, cell phone, office furniture etc.?
If they are really start up expenses, no, they will be amortized.
5. She uses her vehicle for both business and personal and has kept
careful records. Is taking the mileage allowance easier or more
beneficial then actual expenses?
Which every one gives her the greatest deduction.
6. Is the cost of her real estate school and license a business expense
or a lifetime learning credit?
Education to enter a NEW trade or business is not deductible but it may
qualify for the lifetime learning credit.
7. Since she started her business late in the year (October), she did
not make a sale and consequently had no business income in 2007. Can her
business expenses be deducted from her joint account with her husband
who did have income over $100K?
The best thing she could do is download a copy of IRS Pub 583, Starting a
Business and Keeping Records. And IRS Pub 334, the Tax Guide for Small
Business. These should answer all her questions. If she is still confused,
she should find a good tax advisor who specializes in accounting for small
business.

All freely provided advice guarantee correct or double your money back

Frank S. Duke, Jr. CPA
Cincinnati, OH USA
 
R

removeps-groups

If they are really start up expenses, no, they will be amortized.
What about the ability to expense $5000 in startup costs (and $5000 in
organization costs) in the first year of business, subject to the
$50,000 limit?
http://www.irs.gov/publications/p535/ch07.html#d0e4966.

A related question: For a software company, does software and books
purchased before the company is formed qualify as a startup cost?
(One may write software, design websites, and so on before opening the
doors for business.)

6. Is the cost of her real estate school and license a business expense

Education to enter a NEW trade or business is not deductible but it may
qualify for the lifetime learning credit.
The spouse's income is already over 100K, so the joint AGI may be too
high for the lifetime learning credit. Phaseout starts at 94K and
ends at 114K for married couples, and is not available for MFS.

Here's something I don't understand in publication 535.
http://www.irs.gov/publications/p535/ch11.html

<Quote>

Education expenses. Ordinary and necessary expenses paid for the
cost of the education and training of your employees are deductible.
See Education Expenses in chapter 2.

You may also deduct the cost of your own education (including
certain related travel) related to your trade or business. You must be
able to show the education maintains or improves skills required in
your trade or business, or that it is required by law or regulations,
for keeping your license to practice, status, or job. For example, an
attorney can deduct the cost of attending Continuing Legal Education
(CLE) classes that are required by the state bar association to
maintain his or her license to practice law.

Education expenses you incur to meet the minimum requirements of
your present trade or business, or those that qualify you for a new
trade or business, are not deductible. This is true even if the
education maintains or improves skills presently required in your
business. For more information on education expenses, see Publication
970.

</Quote>

Paragraphs 2 and 3 seem to contradict each other. Paragraph 2 says
you can deduct the cost to maintain your skills, but paragraph 3 says
you cannot deduct costs that qualify you for the minimum
requirements. Does this sound contradictory to you? I see "maintain
your skills" and "meet the minimum requirements" as the same thing.

I'd say that the cost of the real estate license is deductible, but
would it be a startup cost or organization cost?

Also, if real estate school is required by law and regulations, would
be it be deductible by paragraph #2?
 
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S

Seth

Paragraphs 2 and 3 seem to contradict each other. Paragraph 2 says
you can deduct the cost to maintain your skills, but paragraph 3 says
you cannot deduct costs that qualify you for the minimum
requirements. Does this sound contradictory to you? I see "maintain
your skills" and "meet the minimum requirements" as the same thing.
If you don't meet the minimum requirements, your skills are
irrelevant, since you aren't allowed to do the work. Once you're
allowed to do the work, maintaining your ability to continue working
can be deductible.

Seth
 

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