Taxes 101 for real estate agents
As a real estate agent, you’re more than just a salesperson—you’re also a small business owner. This means you face some unique tax challenges.
From self-employment taxes to the various deductions available, understanding how taxes work for your business can make a big difference in your bottom line. Let’s break down the essentials.
Business deductions: What can you deduct?
One of the perks of being a self-employed real estate agent is the ability to deduct certain business expenses. Here are some common ones you’ll want to keep in mind:
- Vehicle use: Whether you use your car to show houses or attend meetings, you can deduct either actual expenses (gas or maintenance) or use the standard mileage rate.
- Dues and franchise fees: These are usually deductible as business expenses.
- Advertising and marketing: Items like signs, business cards, and online advertising all count.
- Meals: You can deduct 50% of the cost of business-related meals, as long as there’s a valid business purpose.
- Home office deduction: If you work from home, you may be able to deduct a portion of your rent, utilities, and internet.
Proper documentation is key here. Keep detailed records of your expenses to avoid headaches when tax season rolls around.
Understanding the self-employment (SE) tax
With working for yourself comes the responsibility of paying self-employment (SE) tax, which is 15.3% of your net earnings. This covers your Social Security and Medicare obligations. If you earned $400 or more in self-employment income, you’ll need to file a Schedule SE with your 1040 tax return.
For higher earners, only the first $168,600 of your income in 2024 is subject to Social Security taxes, but the 2.9% Medicare tax applies to all your net earnings.
Estimated tax payments: Don’t get caught off guard
As a self-employed real estate agent, you’ll need to make estimated tax payments throughout the year—each quarter. These payments cover both your income and SE taxes. The deadlines are:
- April 15
- June 15
- September 15
- January 15 of the following year
If you expect to owe more than $1,000 in taxes, you’ll need to make these payments to avoid penalties.
Recordkeeping: Stay organized all year long
We highly recommend good recordkeeping to manage all this on your own.
Consider using software like QuickBooks to track your income and expenses. Apps that track mileage and receipts can also save you a ton of time. If spreadsheets are more your style, that works too, but keep in mind that it might require more manual effort.
Tax structure: LLC or S-Corp?
When it comes to choosing a business structure, many real estate agents start as sole proprietors or single-member LLCs. While this works for smaller operations, an S-Corp might be a better option if your income is on the rise.
Why? With an S-Corp, you can pay yourself a reasonable salary and potentially save on self-employment taxes for income over that amount. It formalizes your business and could make it easier to grow.
Retirement planning: Lower your taxable income
Being self-employed also means you’re responsible for setting up your own retirement plan. However, this again means you have some unique tax advantages.
Options like a Solo 401(k) or SEP IRA let you make contributions that can reduce your taxable income. And don’t forget about Health Savings Accounts (HSAs) if you have a high-deductible health plan. They’re another great way to save.
Need more guidance?
Navigating taxes as a real estate agent doesn’t have to be overwhelming.
Whether you have questions about deductions, self-employment tax, or retirement planning, we’re here to help. Feel free to directly email Robert Roper, Senior Tax Advisor at robert@kroon.us or call our office at (616) 356-2002.
