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Tax Deductions / Tips for Real Estate Appraisers

by Administrator on Mar 30, 2015 ROOT 9762 Views

Just so we are clear, my only real qualification for writing this article is my recent business audit of two tax years.  I’m not a tax professional and I don’t want you to think that this article is authoritative I’m just providing you with some of my thoughts and opinions regarding paying taxes as an appraiser.

I would also warn you that I do go the extra mile to find the last deduction to the point of actually keeping logs and transcribing them to Excel, and I also keep each and every meal receipt (personal and business) and without question each and every business related purchase receipt. 

The IRS focus for my audit was on my business mileage, insurance deductions and meals and entertainment expenses, but I will talk in this short article about some other typical tax deductions for appraisers.  Again I’m not trying to describe each and every deduction that may be available to you.

ADVERTISING:  Most appraisers don’t do much advertising they rely on their contacts with AMC’s, website listings, banks and the Yellow Page Directory.  I also spend advertising money on Internet websites like this one, and I spend a chunk of change on keeping them all online with ISP’s for web hosting, URL’s that must be renewed over and over and at times I spend money on website template development.   Many people still pay for business cards and some for promo items, they are I believe deductible items.

PROFESSIONAL FEES:  Many appraisers have to pay the National Association of Realtors (NAR) and their local Realtor Board for associate dues and MLS access.  If you pay for a Realtor KEY system to access listed properties that is deductible in my opinion.  Some of us have data service fees that give us access to local comparable sales.  As far as I know legal fees and accounting fees are also deductible in this category.  This is also the place for your Association fee deductions, if any.  Also deductible are Appraiser Association fees and other business organization fees.

EDUCATION / CEU’s:  Since all appraisers are required to take continuing education renewal hours per their state laws, this is an area where most appraisers can find some deductions.  Maintaining yourself as a qualified appraiser via CEU’s or taking courses that increase your skills are both deductible.

EMPLOYEE EXPENSES: I generally work on my own, so while I know that payroll accounting, limited health insurance coverage and equipment used by employees is deductible you should reference other articles for assistance in this area.

AUTO AND TRUCK EXPENSES:  I thought I had a handle on my auto deductions, since I kept a log and tracked my mileage on an annual basis, but I didn’t actually run the numbers from my Excel spreadsheet log until my audit.  I agree it’s not brilliant to keep the numbers and then fail to summarize them, but I’m as lazy as the next guy and thus the IRS found that my revised numbers were lower than the reported numbers and I got hit with a penalty.  This is a tough area because most appraisers spend a lot of money on their vehicles and spend a lot of time in their vehicle, but the standard deduction doesn’t make up for your real costs.

The IRS readily admitted to me that the best way to get the highest return was to keep track of all of my auto related expenses, including mileage, gas, oil, tires, repairs, etc., etc. but as anal as I am about keeping records this task was beyond me.   I don’t know how you remain a real estate appraiser and keep track of every event in your life related to your automobile for tax reporting purposes. 

OFFICE EQUIPMENT:  I buy my equipment and I take the Section 179 accelerated depreciation deduction.  I think this is a great deduction since it lets me update my tired equipment, like computers, printers, cameras and accessories, after their typical life expectancy ends.  If you donate the equipment when you are finished with it you don’t need to deal with reporting the remainder value as a gain.

BUSINESS INSURANCE: Errors & Omissions insurance was found to be an acceptable appraisal expense by the IRS, but they disallowed my life insurance.  They allowed my blanket liability policy but disallowed my auto insurance since I claimed the auto mileage deduction.  It’s easy to think that your auto insurance should be deductible but you can’t have it both ways.

MEALS AND ENTERTAINMENT:  While my TurboTax Home and Business 2014 edition program and prior years indicated to me there is a 100% and a 50% meal deduction category the IRS told me in my audit “no way,” they said that there is only a 50% deductible category.  So there is no reason to agonize about which meals should go into that non-existent 100% category. 

As I noted I keep every meal receipt, and the IRS told me that I should write on each one of the receipts that were business deductions so that I make no mistake about claiming meals that were with business clients.  It sounded reasonable to me even though my mileage log verifies the trips that I make to those work related meals, but the IRS wants that extra level of verification. 

OFFICE EXPENSES: Rents, rental insurance, utilities, interest, real estate taxes and related expenses related to keeping your office operating are deductible.  That includes your business phone, Internet fees and related expenses.

SIMPLIFIED EMPLOYEE PENSION (SEP) PLAN DEDUCTION:  Self-employed retirement plans offer appraisers a way to get a deduction that can total up to 20% of net earnings from self-employment.  My problem is that it’s not much of a deduction if I drop a hypothetical $ 5,000 into my IRA I have yet to see it register 20%.  It’s not a good deduction when you consider other plans that let you defer 100% of the income that you deposit. 

HEALTH INSURANCE DEDUCTION: Taking a 100% premium deduction for health insurance as a self-employed appraiser is beneficial, but gone are the days when it made sense for a health person to spend more to get better coverage. 

OTHER DEDUCTIONS:  Most appraisers have reasonable deductions for licensing fees, appraisal books, postage, copying fees, ink costs, paper, shredding, document storage, software updates, a phone and phone services. 

My IRS agent was surprised that I had Excel spreadsheet auto logs, Excel spreadsheet meals and all of the corresponding receipts.  He said that most people called in for audits just threw up their hands and said “sorry, I don’t have that detail.”  That’s an automatic large win for the IRS, if you can’t justify anything that you claimed they will send you off with a fat tax bill with past due interest and penalties.

2017 Update:  If you have an iPhone check ou the TripLog app, it looks like it will save you some time creating that IRS trip log that you will need.

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