Loan Officer Tax Deductions Strategies

Are you a self-employed loan officer, mortgage advisor, or mortgage professional looking to maximize your tax savings? As someone in the real estate industry, you know every penny counts.

That’s why taking advantage of every tax deduction and credit available to you is crucial.

We’ve found nine killer tax strategies tailored to help self-employed loan officers, mortgage advisors, and mortgage companies save money on their taxes.

Top 9 tax strategies for self-employed loan officers and small mortgage companies

Earning money means paying taxes. But the good news is that deductions can significantly reduce the amount of money you must pay at tax time.

Every dollar deducted from taxable income can save almost 50 cents in taxes for a single person with a taxable income of $100,000!

As a self-employed loan officer, managing your finances involves tracking your income and expenses, plus navigating the complex world of tax codes and regulations.

However, with the right tax strategies, you can minimize your tax liability while maximizing your profits.

1. Claim your ERC tax credit for mortgage companies

You may be eligible for a sizeable ERC tax credit if you own a mortgage company and your revenues dropped in 2020 or 2021 compared to 2019.

However, with rates as low as they were in those years, it’s unlikely very many mortgage offices experienced declining revenue. Still, it’s worth mentioning. Perhaps you were not able to maintain service due to government shutdowns or employee sickness.

To be eligible, a business must have experienced a 50% decline in revenue in 2020 or 20% decline in revenue in 2021 compared to the same quarter in 2019.

The credit is calculated based on the wages paid to employees during the period of decline in revenue. The credit can be up to $5,000 per employee and can be claimed for up to three quarters in 2020 and up to $7,000 per quarter in 2021.

Additionally, a recent change in rules means mortgage advisors who received a Paycheck Protection Program (PPP) loan may also be eligible for the ERC tax credit.

2. Find a small business CPA (aka tax ninja)

Most small business owners know how important it is to have a competent and reliable CPA on your side. A CPA can help you navigate the complex world of taxes and accounting, saving you time and money in the long run.

However, finding the right CPA for your business can be daunting. Here are a few quick tips on how to find and work with a small business CPA.

Referrals: Start by asking for referrals from other small business owners or professionals in your industry. If you deal with a fellow mortgage professional or another financial advisor, they may be able to recommend a CPA who specializes in small business accounting.

Credentials: Once you have a list of potential candidates, do your research. Look for online reviews and check their credentials, licensing, and certifications. It’s important to ensure you work with a qualified and experienced professional.

Questions to ask: When you meet with a potential CPA, be prepared with a list of questions about their experience, services, and fees. Ensure you feel comfortable with their communication style and ability to understand your business needs.

Expectations and goals: Once you have chosen a CPA, communicate your expectations and goals for your business. Provide them with all the necessary financial documents and information promptly. Stay in touch regularly and ask for updates on your business finances.

3. Get the biggest mortgage loan officer tax deductions

There are many deductions that a loan officer or mortgage advisor can employ to get the most out of their tax returns.

• Office supplies: Almost anything physical you buy to conduct your business, like binders, pens, folders, a whiteboard, or printer ink, will likely be considered.
• Website and hosting fees: Almost any professional, mortgage industry or otherwise, will have a website. Website service fees from companies like Squarespace, MochaHost, or GoDaddy are generally fully tax-deductible.
• Advertising: Whether print or digital, advertising costs for your loan officer business might be considered write-offs.
• Scheduling software: Hopefully, you’ve got a busy schedule, and many employ a software program (like Zoom or Calendly) that might easily be tax-deductible.
• Seminars and workshops: Workshops, seminars, and coaching sessions used to maintain or improve your work-related skills can often be written off.
• Certifications and licenses: Most mortgage professionals will have to pay for professional certifications or licensing fees to maintain their professional license—and most are deductible.
• Vehicle deduction: If you purchased a vehicle weighing 6,000-14,000 pounds primarily for work, you may be able to write off the entire cost of the vehicle. Here’s a list of vehicle models that might be eligible.

Bonus tip: mortgages when you have a lot of deductions

As a loan officer, you already know how hard it is to qualify for a mortgage with too many write-offs on your tax returns. Employing the right deductions and tax strategies shouldn’t mean you have a lesser chance of finding the right mortgage.

Even though you work in the business daily, you may not know about emerging home loan programs for self-employed borrowers. These loans don’t require tax returns and offer flexible credit and down payment terms.

• Bank Statement Mortgage: Qualify using deposits shown on 12-24 months of bank statements.
• 1-year Self-Employed Mortgage: As you know, traditional lenders require 2 years of self-employment. New programs allow just 1 year.
• Bank Statement 2nd mortgages: For those needing to tap into equity but have too many write-offs on tax returns to qualify.
• No-Doc Liquidity-Based loans: High-net-worth individuals can qualify with no income documentation at all. Approval is based on down payment, credit score, and liquid net worth.
• 1099 Mortgage: Qualify showing income on 1-2 years of 1099s.
• DSCR Loans: Buy an investment property using the property’s cash flow to qualify instead of personal income.

4. Contribute to your retirement plan

One of the most beneficial tax breaks available to self-employed individuals is contributing to their retirement plans, particularly a solo 401(k) plan.

For 2022, it was possible to contribute up to $20,500 in pre-tax earnings to your 401(k) plan and an additional $6,500 if the individual is 50 or older. For 2023, that amount increased to $22,500.

In addition, up to 25% of net self-employment income can be contributed to a retirement plan, such as a SEP-IRA or Simplified Employee Pension plan, with a maximum contribution limit of $61,000 for 2022 or $67,500 for those who are 50 or older.

5. Become a homeowner

Since you’re a loan officer, we are admittedly preaching to the choir here, since you advise clients on the tax benefits of homeownership all the time. But it bears repeating here.

Some of the most common deductions for homeowners include:

• Mortgage interest deduction: Homeowners can deduct interest for the first $750,000 of their mortgages if they can itemize their returns.
• Home office expenses: If you use a dedicated space in your home exclusively and regularly as a place of business, you can deduct the square footage on your taxes (max 300 sqft and a max deduction of $1,500). 
• Property tax deduction: Local and state property taxes are generally eligible for deduction through federal income taxes. The maximum you can deduct would be $10,000 (or $5,000 if you’re married but filing separately).

6. Switch from sole proprietor or LLC to S Corp

If you own a mortgage company, consider transitioning from a sole proprietorship to LLC with an S Corp tax status. You will gain legal and asset protection benefits and tax advantages. Particularly, the switch enables the ability for S Corps to allocate a portion of owners’ income as salary.

This salary is subject to FICA payroll taxes (15.3% of gross wages) and split between the S Corp (7.65%) and the owner (7.65%). The S Corp can write off their portion as a business expense, while the owner’s portion is withheld from their paycheck and income tax.

The primary advantage of an S Corp is that only employment wages are subject to FICA payroll tax, while the remaining profits are only subject to income tax instead of self-employment tax or FICA payroll taxes.

7. Deduct startup costs

According to the IRS, when starting a business, owners should consider all eligible expenses incurred before the business starts operating as capital expenditures that contribute to their business’s basis.

Startup expenses are costs incurred in creating an active trade or business or through the exploration process of acquiring or creating an active trade or business.

8. Self-employed health insurance costs

If you work for yourself and have a net profit for the year, you might qualify for the self-employed health insurance deduction. This deduction is not an itemized deduction but an adjustment to income.

You can claim the deduction for your premiums on health insurance policies covering medical care, including qualified long-term care insurance policies for yourself, your spouse, and your dependents.

Even if the child is not your dependent, you can include your child under 27 at the end of 2022.

To check your eligibility for the deduction, refer to Chapter 6 of Publication 535, Business Expenses.

If you do not claim the entire amount of your premiums paid, you can add the remaining balance to your other medical expenses and claim it as an itemized deduction on Schedule A (Form 1040).

9. Do you qualify for Section 199A Qualified Business Income Deduction?

The QBI, or Qualified Business Income deduction, is a tax benefit provided to self-employed and small business owners, allowing them to deduct up to 20% of their qualified business income on their tax returns.

To qualify for the deduction, the total taxable income of single filers must not exceed $170,050, while that of joint filers must not exceed $340,100 in 2022.

These limits increase to $182,100 for single filers and $364,200 for joint filers in the tax year 2023.

If your income exceeds these limits, you may still receive a partial deduction based on the IRS’s intricate regulations. The deduction applies to businesses that report their income on personal tax returns, including sole proprietorships, partnerships, S corporations, and LLCs.

The bottom line on tax strategies for loan officers, mortgage advisors, and mortgage professionals

Being a self-employed mortgage professional like a loan officer or mortgage advisor can be tough yet rewarding. You worked hard for your money, so don’t let Uncle Sam take any more than what he’s entitled to.

Getting smart about taxes and keeping more of your money is all part of being your own boss.