Double Check the IRS Income Tax Due Dates
Typically, the quarterly income tax due dates for realtors do not change. But like in the case of the COVID-19 pandemic, it is possible for them to change.
In 2020, the IRS pushed back the income tax payment deadline from April 15th to July 15th in order to accommodate the pandemic and help economic growth.
According to realtor magazine, the National Association of Realtors advocated for the extensions.
Missing a quarterly income tax payment can result in penalties plus interest.
To that note, underpaying your estimated income taxes by more than 10% can also lead to penalties, typically 5% of the underpaid amount of taxes.
Do Realtors Pay Taxes Quarterly?
Yes, Realtors pay taxes quarterly. Every four months they must pay their taxes retroactively for the previous four months.
Paying taxes quarterly is the minimum for realtors, but they can certainly pay more often throughout the year. Some may find it easier to pay after each individual closing.
These payments are used to pay for Social Security, Medicare, and income taxes.
How Do Realtors Get Taxed?
Tax brackets can get very confusing and complicated.
The first grouping that separates you into the correct tax bracket is your filing status- Single, Married filing jointly, Married filing separately, or Head of household.
Then, your tax rates are divided into brackets by the amount of your taxable income. The first bracket is 10% of your taxable income.
Every rate after that applies to the amount of income past the maximum income of the previous bracket.
The rates have historically been, 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
It is important to look at the information for that current filing year on the IRS website.
Is a Realtor Considered Self-Employed?
Yes, legally most realtors are not considered employees and are therefore considered self-employed, also known as independent contractors.
Real estate agents get paid commissions from their sales instead of a salary. They receive a 1099 at the year’s end.
This means that taxes are not being withheld from every paycheck, which is the case for employees. Real estate agents pay taxes periodically to the IRS at least quarterly.
Should Realtors Hire Tax Professionals?
While you can search the internet for almost any tax question you may have, it is unlikely you will know the tax forms inside and out quite like a tax professional.
By skipping out on hiring a tax professional you can avoid the tax preparation fees, but you are costing yourself a significant amount of time and increasing the amount of stress put on you as well as the possibility of an error.
Realtor Tax Tips
Put aside roughly 30% of your taxable income.
Realtors pay 15.3% of their net income to self-employment taxes and then another amount depending on their tax bracket. This can be a tax rate of anywhere between 10%-37%.
Putting this money aside helps to prevent you from spending money that already has the government’s name on it, and prevents you from being blind-sighted by the bill.
Keep your receipts
30% of your taxable income sounds like a huge amount, but realtors can pay less taxes by taking advantage of tax deductibles.
You’ll want to make sure you keep documentation of all your business expenses in either receipt form, or on a business credit card.
This way, you can easily keep track of your deductible expenses! You can deduct expenses such as:
This includes the gas, mileage, auto insurance necessary to conduct your buisness.
There are many mileage tracking apps that realtors can use to create documentation and keep track of their mileage history. Some also calculate fuel economy.
Apps for mileage tracking include TripLog, MileIQ, and TaxMileage.
Supplies needed for business
This includes everything from paper and pens to your desk chair, printer, work computer and work phone. Even real estate software can fall under this category.
These smaller purchases can seem insignificant, but can make a big difference in the amount of taxes realtors pay.
Portion of mortgage dedicated to in-home office
If you can say that you have a portion of your home that is solely for work purposes and that this home office is your primary place of business, you can claim it as a deduction.
You have the option to choose from deducting the cost of furniture and renovation of the space, $5 per square foot up to 300 square feet or the percentage of your utilities and mortgage that that portion of your home takes.
Retirement plan contributions
Realtors can contribute the maximum amount legal to their retirement accounts, like an IRA. The full amount of the contribution will be a tax deduction.
All marketing costs for your business can be deductibles.
This includes website expenses, signage, mailers, billboards, and Facebook Ads. Even clients' gifts can be deducted, but only up to a $25 limit.
This is a particularly exciting one, but there are some things to remember. You can only deduct the price of a piece of clothing if it is essential to your business.
If it is suitable for ordinary street wear or you wear the clothing outside of business, you can not deduct it.
Other business expenses
Again, nearly anything you purchase to conduct your business could count as a deductible.
Legal and accounting services, virtual assistants, copywriters, real estate coaching, education, conferences, and membership dues included.
In order for these expenses to qualify as a deductible, they must be “ordinary and necessary, directly linked to your business and a reasonable amount” according to TurboTax.
Take advantage of tax credits
While tax credits can seem complicated because many follow the sliding scale of the realtors income, they can come in hand when it comes time for a realtor to pay taxes.
Child and Dependent Care
If you are paying for the care of a dependent, child or adult, you can qualify for a credit of 20% to 35% for a maximum of $3,000 in care costs.
Residential Energy Credit
Saving the planet had it perks. By making your home more energy efficient, you could get a credit for up to 30% of the cost. This can count towards solar panels or solar water heaters.
The American Opportunity Credit allows undergrad students who are enrolled as at least half time students can get up to $2,500 a year credited.
The Lifetime Learning Credit allows for up to a $2,000 credit for students enrolled in an accredited non-degree program, undergrad or grad school. This credit has no minimum school credit enrollment requirement.
These credits can apply towards you or your dependent children.
Earned Income Credits
Any american with a qualifying income of less than $55,000 may qualify for the earned income credit.