To the federal government, real estate agents are sole proprietors or self-employed. This means that when it’s time to file taxes a broker will generally send over a 1099 form. It’s at this point that an agent will have to pay taxes on their commissions for the year. This can sometimes be a costly process. Avoiding huge tax payments and ensuring the ultimate deductions can be easy if you follow some simple tips.
Most real estate agents calculate their possible income for the following year. When doing these calculations it’s very important to pay attention to the commission split agreed upon with your broker. A successful real estate agent will save for their tax payments throughout the year. However, if they are using the incorrect commission split it’s possible they haven’t been saving enough. If this does happen some agents will end up gouged by their tax payments. Be sure to know your broker commission split before calculating your budget and taxes.
Knowing Your Deductions
One of the most essential components of filing as a 1099 employee is to understand and apply all possible deductions. Generally, an independent contractor will file for a 1099. With that distinction, your taxes aren’t removed from your commissions—a real estate agent falls into this category. Many are costing yourselves big time by not researching every available tax deduction for real estate agents.
Real Estate Tech
There are software companies that provide accounting services to entrepreneurs and small business owners. One of the most well-known and widely used tax software is Quickbooks. However, as the tech industry advances there are new, more niche companies emerging. RealtyZam is an accounting software built just for real estate agents. Track expenses and generate tax reports in just moments with this must have real estate tax software.
Many real estate agents are attracted to the freedom that comes with working independently out of a brokerage. But with this freedom comes a lot of driving. Driving clients to viewings, open houses, and to your brokerage for paperwork can all add up. Before modern technology, you were stuck keeping diaries to track this driving. Now you can simply download an app that will track and organize your trips into the ‘Work’ or ‘Personal’ category. Everlance is one mileage tracking app that doesn’t only keep count of our work trips, but can also generate easy to read reporting and spreadsheets.
Self-Employed Health Insurance
One of the costs of self-employment is health insurance. Without an employer there isn’t any coverage, so your health insurance comes out-of-pocket. With the Self-Employed Health Insurance deduction, you don’t have to itemize individual receipts to deduct your premium. In order to do this, your business must turn a profit in the last fiscal year. Another rule is that you shouldn’t collect any form of group health insurance to be eligible for this lucrative tax deduction for real estate agents. For those that fit the bill, this can be a must-cite deduction to avoid costly tax payments.
While for some these tips are basics, it’s essential to stay organized and manage your time all year to ensure the lowest tax payments. Being a real estate agent implies freedom and entrepreneurship, but to be successful you must also be ultra-organized. Luckily, in most accounting cases you can download some tech to help.