Common Tax Mistakes Real Estate Agents Make (and When It’s Time to Think About an S-Corp)
I’ve recently been going through the homebuying process firsthand, which has served as a reminder of just how much real estate agents juggle. Between showings, negotiations, and keeping clients calm, there’s barely time left to breathe, never mind keeping your own finances organized.
But here’s the thing: real estate professionals have unique tax and bookkeeping needs, and if they’re not handled properly, it can mean lost deductions or bigger tax bills than necessary.
Let’s break down a few of the most common tax mistakes that real estate agents make, and then talk about when it may be time to take things a step further with an S-Corp.
Mistake #1: Not Setting Aside Money for Taxes
Unlike W-2 employees, your commissions don’t come with tax withheld. That means if you’re not planning ahead, tax time can bring a painful surprise.
The IRS has safe harbor rules to help you avoid underpayment penalties: generally, if you pay in at least 90% of what you owe for the current year, or 100% of what you owed last year (110% if your income was over $150,000), you’ll steer clear of penalties.
The tricky part is knowing what “90% of this year’s tax” looks like when your income is unpredictable. That’s where working with a tax professional can help. They can run projections and guide you on how much to send in with your quarterly estimated payments, so you’re not overpaying or underpaying.
Mistake #2: Forgetting Mileage and Vehicle Expenses
Your car is one of your most important business tools and one of the biggest deductions you have. Whether you’re driving clients to showings or previewing properties, those miles add up fast.
The problem? Too many agents guess at their mileage, or don’t track it at all. Using an app (or even just your phone’s notes app) makes it much easier to capture the deduction accurately. Leaving it out means you’re literally driving away from tax savings.
Mistake #3: Misusing the Home Office Deduction
There’s a common fear that taking the home office deduction is a red flag for the IRS. That’s only true if you’re stretching the rules.
If you have a dedicated space in your home that you use exclusively for work, you can deduct a portion of your rent, mortgage interest, utilities, and internet. Keep records and maybe even snap a photo of your workspace, and you’ll be on solid ground.
Mistake #4: Mixing Personal and Business Expenses
Swiping the same debit card for groceries and open house snacks may not feel like a big deal but it makes bookkeeping a nightmare. It also puts you at risk of missing deductions (or deducting something that doesn’t belong).
The fix is simple: open a separate business checking account and funnel all commissions and business expenses through it. Clean separation = clean books = cleaner taxes.
Mistake #5: Ignoring Business Structure
Many agents start as sole proprietors, which is perfectly fine in the beginning. But as your business grows, sticking with that setup could mean you’re paying more in taxes than you need to.
Here’s why: as a sole proprietor, all of your net income is subject to self-employment tax (currently 15.3%). Once you’re netting around $70,000 or more, that can get expensive.
This is where an S-Corporation can make sense. By forming an S-Corp, you can pay yourself a reasonable salary (which is still subject to payroll taxes), but the remaining profit can be taken as a distribution, avoiding self-employment tax. The savings can be thousands of dollars per year.
When to Consider an S-Corp
An S-Corp isn’t for everyone. It comes with more paperwork, payroll requirements, and bookkeeping complexity. But it’s worth thinking about if:
You’re earning consistent, healthy commissions.
You want to reduce self-employment tax.
You’re willing to handle (or outsource) a little extra compliance.
Final Thoughts
Real estate is already stressful enough. You shouldn’t have to worry that your taxes are costing you more than they should. Avoiding these common mistakes and planning ahead with the right structure can make a huge difference.
Whether you’re just starting out or you’re an experienced agent ready to explore the S-Corp option, the key is keeping your books clean and your strategy clear. If you’d like help making sure you’re not leaving money on the table, let’s connect!