Property managers are engaged in a service business. As such, they are entitled to the fully array of business-related tax deductions. Almost everything you buy for your business is tax deductible sooner or later so long as it is ordinary and necessary and the cost is not unreasonable.
Property management tax deductions can really add up. For example, if you buy a $2,000 computer and use it for your business, you could deduct the full cost from your taxes. If you were in the 28% federal income tax bracket, this would save you $560 in income tax. In effect, you’d be getting a 28% discount on the computer. The catch is you must really use the computer or other item you buy for your business. You can’t deduct personal expenses.
Here are ten of the most common property management tax deductions:
1. Car Deductions
The cost of all driving you do for your property management business, with the important exception of commuting to and from your home to work, is tax deductible. If you like record-keeping, you can keep track of all your car expenses to figure your annual deduction. But, if you’d rather not keep track of how much you spend for gas, oil, repairs, car washes, and so forth, you can use the standard mileage rate. When you use the standard rate, you only need to keep track of how many miles you drive for business, not how much you spend on your car. For 2013, the standard mileage rate is 56.5 cents per mile. For 2014, it will be reduced to 56 cents per mile.
2. Office Expenses
The amounts you spend on your business office are deductible business expenses. For example, you may deduct the rent and utilities you spend for an outside office or other workspace. If you work at home, you may be able to deduct the cost of your home office. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizeable expense that is ordinarily not deductible. For the ins and outs on taking the home office deduction, see my book Home Business Tax Deductions.
3. Business Travel
You may also deduct your expenses when you go out of town for your business. These include airfare or other transportation costs and hotel or other lodging expenses. But, you may only deduct 50% of the cost of meals when you travel on business. If you plan things right, you can even mix pleasure and business and still get a deduction.
4. Meals and Entertainment
The days of the deductible three-martini lunch are pretty much at an end. To deduct the cost of a meal in a restaurant or an entertainment event like baseball game or theatre visit, you must have a serious business discussion before, during, or soon after the event. Moreover, you may only deduct 50% of your business meal and entertainment costs.
When you buy property for your business that will last more than one year, you may deduct the cost a little at a time over a period of years. This process is called depreciation. Examples of depreciable property include cars, computers, cell phones, and office furniture. However, you don’t always have to depreciate such long-term business property. Small businesses have the option of deducting the entire cost of such property in a single year under Internal Revenue Code Section 179. This enables you to get a big deduction in a single year rather than spreading it out over several years.
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6. Rent for Equipment and Tools
Many businesspeople don’t buy expensive equipment or vehicles—they rent them instead. The rent you pay for property you use for your business is fully deductible as a business expense.
7. Materials and Supplies
Materials and supplies are business items that you use up in less than one year. They include everything from paperclips to postage stamps. Under new IRS regulations, any personal property you buy for your business that costs less than $200 is deductible as materials and supplies.
8. Legal and Professional Services
You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your business.
Insurance you buy just for your business is deductible—for example, business liability insurance or insurance for business property. If you have a home office, you may deduct a portion of your homeowners insurance. Self-employed people are also allowed to deduct 100% of their health insurance premiums from their income taxes.
10. Employees and Independent Contractors
If you hire one or more employees to help you with your property management business, your payroll and other costs such as health insurance and other benefits are fully deductible. When you hire an independent contractor—that is, a person who is not your employee–to perform services for your business, the cost is deductible as well. For example, you may the deduct the cost of hiring a bookkeeper to do your books or a custodian to clean your offices.
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