Estimated Tax Considerations for Real Estate Agents

Estimated Tax Considerations for Real Estate Agents

Although the digital age is changing so many dynamics in the real estate business, the tax process is mostly business as usual. Most agents are still considered independent contractors or self-employed sole proprietors.

In most of all cases, that means that no taxes are withheld from your commission checks; therefore, you’re responsible for paying taxes four times a year (quarterly).

These are called “estimated taxes,” an educated guess as to how much you will be earning and the resulting percentage you will pay in taxes. These estimated taxes are used to pay both income taxes and self-employment taxes (Social Security and Medicare taxes).

Estimated taxes are expected to be paid by sole proprietors, partnerships, or members of a limited liability company (sometimes C-Corporations too).

Because you need to pay these taxes quarterly, you must create a plan to set that estimated amount aside so that you can afford to pay them on time and in full. It’s very common — and unfortunate — when agents ignore their tax considerations until the last minute; as a result, they often have a difficult time producing the required amount to satisfy tax obligations. Ask a tax professional to help you plan for your estimated taxes, and set up an account to save for it.

Agents who are paid $600 or more during the course of a year must file IRS Form 1099-MISC. This form must also be filed for state taxes as well.

As far as tax deductions, your status as a real estate agent allows for a few advantages. The keys to successful tax prep are careful, detailed record keeping and knowing which write-offs are legal.

In order to deduct expenses, they must first be considered ordinary and necessary to your business, and in reasonable amounts. Check out IRS Publications 463 and 535 to find out more.

It’s a common temptation to want to pay as little estimated tax as possible, but remember that the IRS imposes penalties if you don’t pay enough estimated tax. To avoid this penalty, pay 90 percent of your total tax due for the current year. Another consideration: pay 100 percent of the same tax amount you paid last year. In any case, review your situation with a tax professional.

Your first tax installment is usually due on April 15 (this year, the deadline is April 17). Check here for the four tax due dates.

Common deductions for real estate agents include (but are not limited to! Check with your tax professional to drill down further):

Car and transportation: as used strictly for business, not for commuting to and from work.

Office: computers, office supplies, property, software, and related expenses. If you work from home, you may be able to deduct a portion of your workspace, but check with a tax professional first.

Travel: if you are traveling for business (like to a trade show or to visit a client).

Meals: this could get tricky, but think of the deduction only as it would apply to your business (a business breakfast with your client, for instance).

Legal and professional services: fees for lawyers, accountants, career counselors, and consultants.

Insurance: as long as it relates to your business, like liability insurance; you may also be able to deduct your health insurance premiums.

Click here for more information about tax tips for real estate agents.


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