I recently completed a project with my tax advisor, Kevin Bassett, CPA. Kevin and I collaborated on strategies for building wealth beyond the simple commission. According to Kevin, once you file that first tax return as a ‘business’, the IRS becomes your partner in business. Your odds of being audited go up tremendously versus just a W2 employee working for a large company. As you prepare your returns, you want to do so in a way that statistically minimizes the odds of it getting selected for audit. Here are the top 7 things to watch out for:
1. Subcontractor vs. Employees – Certainly a major issue for owners of brokerage firms; but also an issue for the individual commercial real estate professional who has (or is building) a team. The guidelines are both comprehensive and clear.
2. Schedule C – Business – Many individual commercial real estate professionals rightfully structure an entity around their practice. But, depending on how you are structured – this is a potential red flag depending on what you declare.
3. Cash Jobs and Commingling Funds – Cash jobs are more of an issue for the brokerage owner than the individual agent; and certainly more a residential element. However, commingling can affect any business. Avoid paying personal expenses or any other unrelated expenses from your business account.
4. Vehicles – Whether you are leasing your vehicle for work, or you own it – if you are going to write off any element (especially mileage) you need to have a detailed record of everything.
5. S-Corp Officer’s Compensation – See #2 above. This depends on how you are structuring your entity for your commercial real estate practice.
6. W-2 Errors – If you have employees, this is where professional payroll services (or even employee leasing) can be of great help. Your expertise is selling, leasing, managing, financing, and/or operating commercial real estate – not processing payroll. This is a major trigger for audits.
7. Hobby Losses – This is in case you have a business that is not profitable for at least 2 of the past 5 years.
If you would like to learn more about creating wealth from commissions, I invite you to check out my new book Building Wealth Beyond the Commission – Mindsets, Strategies and Principles for Creating Abundance Above a Simple Transaction Fee, co-authored with Kevin Bassett, CPA. In this book, you are going to learn strategies for transforming your generated commission income to real wealth. We only printed 500 copies for this first run – if you interested, click here to secure your copy!
If you want to schedule a free strategy session on how you can consistently earn greater income, click here.