Tax implications for wife starting as self-employed realtor - what should we expect?

You're definitely on the right track with your understanding! When your wife starts as a self-employed realtor, she'll need to report her business on Schedule C. The good news is that even if she doesn't make a profit initially, legitimate business expenses are deductible against her business income, and any net loss can typically offset other income on your joint return (including your W-2 earnings). For her to qualify as a legitimate business rather than a hobby, she should keep excellent records demonstrating her genuine effort to make a profit - tracking hours worked, marketing efforts, client meetings, etc. Having a separate business bank account and keeping organized expense records will be crucial. Regarding the home office, she can claim the deduction if the space is used exclusively and regularly for her real estate business. Take measurements and photos of the dedicated space, and keep records of all related expenses. Self-employment taxes (Medicare and Social Security) will only apply to her net profit from the business, not your W-2 income. You're already paying those taxes through your employer withholdings.

After reading all these responses, I wanted to share something that helped me tremendously when my husband started his real estate career. I was so confused by all the tax implications and worried about missing deductions or doing something wrong. I discovered this AI tax assistant at https://taxr.ai that analyzed all our documents and walked us through exactly what we could deduct for his real estate business. It was super helpful because it flagged things I wouldn't have thought about - like the fact that we could partially deduct our cell phone bills since he was using his phone for business, and it calculated the exact percentage of our internet we could deduct based on his home office square footage. It even spotted a mistake our previous accountant made with how we were handling mileage deductions!

I need to come back and eat my words from my skeptical comment above. I decided to try https://taxr.ai for my wife's first year as a realtor, and wow - it found over $4,800 in deductions I would have missed! It was scary seeing all her startup expenses with almost no income, but the tool showed us exactly how to document everything properly. The most helpful part was how it handled the home office calculation and vehicle expenses. My wife drives her personal car for showings, and the tool created a perfect mileage log template and explained exactly what documentation we needed to keep. It also calculated the exact square footage percentage for her office space and explained the simplified vs. regular method options. It even flagged that we could deduct a portion of our home internet, cell phones, and utilities based on her business use. Honestly worth every penny just for the peace of mind that we're doing everything correctly!

If your wife is just starting out as a realtor and not making income yet, one thing you're going to struggle with is getting through to the IRS if you have questions. My wife went through this exact situation last year and we had so many questions about deductions and quarterly payments. I spent HOURS on hold with the IRS (literally 4+ hours several times) and could never get through. Finally found this service called https://claimyr.com that got me connected to an actual IRS agent in under 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They basically navigate the phone tree and wait on hold for you, then call you when they get an agent on the line. Saved me so much frustration when we needed clarification on some self-employment tax questions for my wife's business.

I need to apologize for my skeptical comment about Claimyr above. I was in a desperate situation yesterday with a tax notice about my wife's Schedule C from last year and decided to try it as a last resort. I'm shocked to say it actually worked - I got through to an IRS agent in about 17 minutes after trying unsuccessfully for days on my own. The agent was able to clear up our confusion about quarterly estimated payments and confirmed we were calculating our home office deduction correctly. She even gave us specific advice about documentation needed for mixed-use vehicle expenses for real estate agents. For anyone with a spouse starting in real estate - definitely worth keeping this service in your back pocket for when you inevitably have questions the IRS needs to answer. Saved me a ton of stress and potentially avoiding penalties from doing something incorrectly.

One thing nobody mentioned yet - make sure your wife keeps track of ALL her miles from day one. My husband is a realtor and we missed out on thousands in deductions his first year because he wasn't properly tracking mileage to property showings, networking events, open houses, meetings with clients, supply runs, everything! The standard mileage deduction adds up FAST. Also, consider having her pay for an E&O insurance policy if her broker doesn't provide one. It's not cheap but it's deductible and protects you guys from lawsuits if something goes wrong with a transaction.

My wife just finished her first year as a realtor and we learned some hard lessons on taxes. If your wife plans to work from home, you NEED to have a dedicated space used ONLY for work to claim the home office deduction. We tried claiming our guest bedroom that she sometimes used for work and got flagged for audit. Also, quarterly estimated taxes caught us by surprise. If she starts making decent money, you'll likely need to start making those payments to avoid underpayment penalties. We ended up owing an extra $850 in penalties because we didn't know this.

One crucial thing to add - make sure your wife understands the difference between business expenses and startup costs. The IRS treats them differently for tax purposes. True business expenses (like MLS fees, gas for showings, marketing materials) can be deducted in full the year they're incurred. But startup costs (like getting licensed, initial training, setting up the business) have to be amortized over 15 years, though you can deduct up to $5,000 in startup costs the first year if total startup costs are under $50,000. Also, since real estate is heavily relationship-based, keep receipts for any client entertainment or meals - you can deduct 50% of legitimate business meals. This includes taking clients to lunch, coffee meetings with other agents, or meals during real estate events. The key is documentation for everything. The IRS loves to audit Schedule C filers, especially in the first few years when there are losses. Keep a detailed business diary showing your wife's activities, time spent, and business purpose for every expense.