There’s No Need to Be Afraid of Tax Season
Doing your taxes is rarely fun, no matter what profession you’re in — but filing taxes as a real estate agent can feel especially intimidating. While the process of filing taxes as an agent can be complicated, it’s totally doable if you commit to planning ahead and staying organized.
Although it might not sound like the most thrilling topic, filing your taxes correctly is incredibly important. So, pour yourself a cup of coffee, find a comfortable place to sit, and join us as we talk about taxes and help get you ready for tax season 2022.
Tax Tips for Real Estate Agents
If you’re new to filing taxes as a real estate agent, we have a few tips.
Real estate agents are almost always considered self-employed, even if they work for a brokerage — and that has a major impact on how they file taxes. If you’re an agent, you likely operate your business as a sole proprietorship, the Internal Revenue Service (IRS) says. This allows you to write off eligible expenses, but it also means that you’ll likely be expected to pay self-employment tax quarterly in addition to your annual income taxes.
As you likely know, agents typically make money through commissions on home sales, with the commission being split with the agent’s Broker.
As a self-employed worker, taxes won’t be taken out of your paycheck the way they would be if you were an employee of a company. You’ll likely have to make estimated tax payments each quarter to cover things like Social Security and Medicare in addition to your annual income tax filing. Many experts recommend setting aside at least 30% of your gross income for taxes.
According to the IRS, these are the estimated tax due dates:
- 4/15 (taxes due on income earned from 1/1 to 3/31)
- 6/15 (taxes due on income earned from 4/1 to 5/31)
- 9/15 (taxes due on income earned from 6/1 to 8/31)
- 1/15 (taxes due on income earned from 9/1 to 12/31)
“For estimated tax purposes, the year is divided into four payment periods,” the IRS says. “Each period has a specific payment due date. If you don't pay enough tax by the due date of each payment period, you may be charged a penalty even if you're due a refund when you file your income tax return at the end of the year.”
Keep thorough records of your business transactions, and don’t throw away receipts — you’ll need documentation if you plan to deduct business-related expenses. (And you should!) Some expenses that you might be able to deduct include transportation, home office purchases, and marketing materials.
Also good to know: The Protecting Americans from Tax Hikes (PATH) Act might bring real estate professionals some relief when it comes to business-related purchases, TurboTax advises.
“Enacted in 2015, the PATH Act allows you to immediately deduct all or a greater portion of your purchase, which means bigger savings at tax time,” TurboTax says. “For example, you can expense, or write off, up to $25,000 of the price of a new car for the tax year in which you bought it. There are certain limits to the type of vehicle that qualifies for this tax break, however, as well as limits to the amount of the allowable deduction.”
The bottom line: If you’re confident in your ability to stay organized and plan ahead throughout the year, filing taxes as a real estate agent can be simple. But when in doubt, it doesn’t hurt to consult a tax professional.
Resources for Further Reading
Hoping to dig a bit deeper? The CE Shop has an abundance of tax-related content written specifically for real estate agents.
This blog is an introductory guide to filing taxes as a real estate agent, from the kinds of expenses that you might be able to write off to the types of tax forms you should be aware of.
In this video, The CE Shop’s Dan Harris talks about how to take advantage of all of your available tax deductions. He also explains what self-employment tax is.
If you’re looking for even more financial advice, check out this blog! From accounting for taxes to preparing for slow periods, creating a thorough budget is absolutely essential in the real estate business.
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