As a real estate agent, you work hard for your commissions, but without a solid tax strategy, too much of your income can slip away. The good news? Taxes don’t have to be overwhelming or unpredictable – as long as you understand the system and have a plan.
Kelly Cote, director of operations and services at Keller Williams Realty, LLC, and a former market center administrator (MCA), loves discussing tax strategy. “Taxes are a fun topic, once you see them as a system that can be managed almost like a game.”
For more than a decade, Cote has been helping agents keep more of their hard-earned income (in a legally compliant way). “Understanding how to optimize your tax strategy isn’t about gaming the system – it’s about playing by the rules in the smartest way possible,” she says.
So, how can you take control of your 2024 taxes and win the game, legally and strategically? By implementing a few key habits, avoiding common tax pitfalls, and ensuring your finances are structured for long-term success.
“Understanding how to optimize your tax strategy isn’t about gaming the system – it’s about playing by the rules in the smartest way possible.”
Kelly Cote, Director of Operations and Services, Keller Williams Realty, LLC
Step 1: Choose the Right Business Structure to Reduce Taxes
Your business entity affects how much tax you pay. Choosing the proper structure has the potential to save you thousands of dollars while keeping you compliant. “Your business structure isn’t just a legal choice, it’s a financial one. Setting up the right entity early on can save you in taxes over time,” explains Cote. Here are some options to consider:
Sole Proprietorship: Easy to start but exposes you to self-employment taxes (15.3%) on everything you earn.
LLC (Limited Liability Company): Provides legal protection but is still taxed as a sole proprietor, unless structured otherwise.
S-Corporation (S-Corp): You can reduce self-employment tax by paying yourself a reasonable salary and taking the rest as distributions.
C-Corporation (C-Corp): Best for large-scale businesses but comes with corporate taxation.
Quick Tip: The IRS description of business structures offers more details on how each business entity is taxed.
Step 2: Separate Your Finances With Two Bank Accounts
Mixing business and personal finances is one of the most common mistakes Cote sees agents make – and it leads to major tax headaches along the way. A simple fix? Open two dedicated business accounts:
A Business Operating Account: Use this to receive commissions and pay business expenses.
A Tax Savings Account: Immediately transfer 25-40% of each commission into this account to ensure you’re prepared for tax payments.
“Separating your business finances from your personal finances is the single most important thing an agent can do,” says Cote. By keeping these accounts separate, you’ll avoid spending money already earmarked for taxes. It also has the added bonus of streamlining your bookkeeping.
Quick Tip: When it comes to keeping your documents in order, reference IRS guidelines for recordkeeping, which details what records to keep and for how long.
Step 3: Treat Taxes Like a Business Expense – Because They Are
Every year, thousands of agents are surprised by their tax bills. The reality? Taxes aren’t a surprise – they’re an unavoidable part of doing business. Instead of waiting until filing season, tracking income and expenses throughout the year is crucial so that you’re taking full advantage of deductions.
“Before your business gets paid – even before you get paid – the tax man gets paid. If you don’t plan for it, you’ll scramble at the worst possible time,” says Cote.
In addition to setting aside 25-40% of your income, here are three more ways to get ahead of a major tax bill:
Track all expenses to maximize deductions. (More on this below!)
Make quarterly estimated tax payments to avoid IRS penalties.
Work with a tax professional year-round, not just in April.
Quick Tip: The IRS estimated taxes page includes information on how to figure estimated tax, when payments are due, and more.
Step 4: Maximize Real Estate Tax Deductions the Right Way
Tax deductions are a small business owner’s best friend, says Cote. “There’s a saying that if you want to know what the government cares about, look at their tax code. Our U.S. government loves small businesses, and the tax code supports that.” Here are four real estate tax deductions to consider and discuss with a tax professional. Get the full list of the 12 Most Common Real Estate Tax Deductions here.
Vehicle & Mileage Deductions
“As a real estate agent, your car is like a second office. Track every mile, and don’t leave deductions on the table,” explains Cote.
Standard mileage deduction: $0.70 per mile (2025 IRS rate)
Actual vehicle expenses: Gas, maintenance, insurance, depreciation
Quick Tip: Log every business mile with an app like MileIQ to ensure compliance.
Home Office Deduction
“So many agents don’t realize they qualify for a home office deduction. If you have a dedicated workspace, you should take advantage of it,” says Cote.
Deduct $5 per square foot (up to 300 sq. ft.) OR
Deduct a percentage of rent, utilities, and internet if you work from home.
Quick Tip: Your home office must be used exclusively for business – document it properly.
Marketing & Lead Generation
Social media ads, direct mailers, and signage
Professional listing photography and video tours
Quick Tip: Track every marketing dollar spent; it’s generally all deductible.
Continuing Education & Licensing
Real estate licensing fees, CE courses, coaching programs
Conferences, masterminds, and workshops
Quick Tip: Education must be related to your current business – not a new career path.
Step 5: Use Advanced Strategies to Legally Minimize Taxes
Once you’ve structured your business correctly, built tax planning into your financial routine, and maximized deductions, you may be ready to take tax strategy to the next level. The most financially successful agents don’t just earn commissions, they build wealth. That means leveraging tax laws designed to benefit business owners and investors.
Here are three advanced strategies to help you keep more of your money, invest wisely, and build long-term financial security. A tax professional will help you evaluate which strategies you can use.
1. Own Investment Properties? Leverage Cost Segregation
If you’re investing in rental properties, you already benefit from real estate’s tax advantages. But are you maximizing them? The IRS allows property owners to depreciate their assets over time, reducing taxable income. However, most investors take depreciation too slowly, leaving money on the table.
That’s where cost segregation comes in.
Instead of depreciating an entire property over 27.5 years (residential) or 39 years (commercial), cost segregation reclassifies components of a building – like flooring, cabinetry, and electrical systems – into shorter depreciation categories (5, 7, or 15 years). This allows you to accelerate depreciation and take more significant deductions upfront.
Example: An investor who purchases a $400,000 rental property and applies a cost segregation study might be able to immediately deduct tens of thousands of dollars in the first few years, rather than spreading it out over decades.
Action Step: If you own rental properties, consult a certified public accountant (CPA) or cost segregation specialist to determine whether this strategy could significantly reduce your taxable income.
2. Take Advantage of the Section 199A Deduction
In 2017, the Tax Cuts and Jobs Act introduced one of the most significant tax breaks for small business owners: the Section 199A deduction, also known as the Qualified Business Income (QBI) deduction. This provision allows certain business owners – including many real estate agents – to deduct up to 20% of their qualified business income.
If you operate as an LLC, S-Corp, or sole proprietorship, you may qualify for this deduction, effectively lowering your taxable income without changing your business structure.
Important: Not all agents qualify; this deduction phases out for higher-income earners. The IRS also has specific rules about what counts as “qualified business income” versus wages.
Action Step: Meet with a tax professional to evaluate whether Section 199A applies to your business and to ensure you’re taking full advantage of this tax break.
3. Save for Retirement While Reducing Your Tax Bill
Many agents focus on immediate earnings, but long-term wealth comes from strategic investing and tax-efficient retirement planning. Contributing to a retirement plan not only builds financial security, it can significantly lower your taxable income today.
Here’s how real estate professionals can make the most of retirement contributions:
SEP IRA (Simplified Employee Pension Plan): Ideal for independent agents or small teams, allowing contributions of up to 25% of net earnings (max $69,000 in 2025).
Solo 401(k): Designed for self-employed individuals, allowing both employee and employer contributions, making it one of the most flexible retirement savings options for high earners.
Example: If you contribute $30,000 to a Solo 401(k), that’s $30,000 less in taxable income, reducing the amount you owe to the IRS.
Action Step: Opening or increasing contributions to a tax-advantaged retirement account before year-end can reduce your tax burden and invest in your future.
Remember: Start Simple, Advance With a Professional
Optimizing your taxes isn’t about cutting corners – it’s about keeping more of your money by playing smarter. For agents just diving into their tax strategy, it’s about starting with a few simple habits. “At a minimum, start tracking your gas mileage, save your receipts, and learn more about deductions you can make. Small actions add up,” says Cote.
“At a minimum, start tracking your gas mileage, save your receipts, and learn more about deductions you can make. Small actions add up.”
Kelly Cote, Director of Operations and Services, Keller Williams Realty, LLC
As your business grows and your tax strategy becomes more complex, engaging with a professional bookkeeper and a CPA is a game-changer. A bookkeeper helps you stay organized day-to-day, ensuring expenses are correctly categorized and deductions aren’t missed. By contrast, a CPA provides deep tax expertise, helping you structure your business efficiently, plan for tax liabilities, and leverage advanced tax-saving strategies legally and effectively.
By starting simple and advancing with professional guidance, you can ensure every dollar you earn is working for you (not against you) at tax time – and throughout the year.
The information provided in this article does not, and is not intended to, constitute financial advice; instead, all information, is for general informational purposes only. You should consult your own financial or tax advisor and verify all information to your satisfaction prior to taking any action.
