In this episode we talk about many of the recent changes in tax law and how they affect Real Estate Agents and small businesses.
Podcast Takeaways
- Consult with your own tax advisor!
- Standard Deduction has doubled to $24,000 in 2019
- Look at your business structure. It can make a huge difference in the way and amount of taxes that you pay.
- Keep a detailed log of all your business activities.
- Meet with your accountant at least a few a times per year
It’s Tax Time with Mike Wright Podcast Transcript
Adam Small: Hello and welcome to the Real Estate Marketing Minute. I’m your host Adam Small, and with us today is Kimberly Small. Hi Kim.
Kimberly Small: Hi.
Adam Small: How are you doing today?
Kimberly Small: Can’t complain.
Adam Small: Great, great. So today we are in the offices of Taxwright with Mr. Mike Wright, an accountant. Hi Mike, how are you?
Mike Wright: I’m good. How are you all?
Adam Small: Doing well, thank you very much. Thank you so much for joining us on our podcast and having us here at your offices, we do appreciate it.
Mike Wright: It was my pleasure.
Adam Small: Great. So what we are gonna be doing today is kinda talk about some of the recent tax changes, tax law changes, and kinda talk about how they may or may not impact a real estate agent, depending on how their business is structured. So the first thing I’m gonna say is that this is not meant to be tax advice and you should always consult with your own tax advisor before taxing any step based on any of this information. So with that said, Mike, why don’t you tell us a little bit about yourself?
Mike Wright: Well, I got into the accounting business because for 30 years I was an insurance auditor, audited small business for a large insurance company all over Indiana and for a while in Texas, and as the requirements to drive around got to be a little bit more onerous, I started my own business in my basement doing taxes for folks. I did my first paid tax return in 1992 and I’ve been doing more and more every year since. My focus is on individual tax preparation because people that are in business for themselves have to file tax returns, then obviously my experience in doing business audits was helpful in bringing that about, and so now I function as a full business accountant, not just focusing on only taxes but also book keeping and profit building and business development and so forth.
Adam Small: And you must be doing something right. You’ve been doing it for a while.
Mike Wright: I have.
Adam Small: Great. So real estate agents are generally considered independent contractors that are affiliated with a company. So can you tell us a little bit about how that’s different from being a regular W2 employee as opposed to that independent contractor status?
Mike Wright: It’s important, this year particularly, because of the big changes that were made in the tax law in 2017, and this is the first year that those results are being seen. It’s particularly important to remember that a self-employed person has a broader range of ways to reduce their taxable income than an employed person does. W2 employees are pretty accustomed to the normal deductions for mortgage interest and charitable contributions and so forth, but with the new standard deductions for those people, in most cases those amounts of money will no longer be significant, ’cause for a married filing joint couple, we’re looking at a deduction, a standard deduction of 24000 dollars, which is pretty substantial for most folks.
Adam Small: And it used to be 12000, is that right?
Mike Wright: Yes.
Adam Small: So it’s doubled. That’s really a big difference.
Mike Wright: It is. It is, and however with someone that’s in business, as indicated by a 1099 report, they get to deduct all of the expenses that are related to their trade or business, in most cases, a 100 percent. There is a reduction for meals at 50 percent, but other than that, everything is 100 percent. But the key is that those deductions have to be ordinary and necessary expenses for that business and that can be a relative term, but that’s the standard there. So that’s the good side because it helps reduce your income by being able to take those business expenses off.
The downside is that by being self-employed, it’s necessary that you pay what’s called the self-employment tax, and what that is, is the social security and Medicare tax that everybody pays, and as an employee, you pay half out of your wages and your employer pays the other half. As a self-employed person, you’re obligated to pay both halves, and that runs about 15 and a half percent of the profits that you make in your business, in addition to whatever othe