How To File Your Taxes as A Real Estate Agent
Filing taxes as a real estate agent can shock the system if you've always been a W-4 employee. You have to pay your taxes throughout the year, and your yearly tax return is also much more complicated.
Below, we'll review the filing methods most real estate agents use when they file as sole proprietors, so you'll know what's what when tax time comes.
Are You Self-Employed or An Employee?
How you file taxes as a real estate agent will depend on whether you're classified as an employee or an independent contractor (also known as self-employed).
There are very few employed agents in the real estate industry. Most real estate agents are their bosses – it's one of the draws of the job for many people.
How do you know if you're employed or self-employed?
You should file taxes as an employee if:
- Your taxes are withheld automatically from your paycheck.
- You filled out a W-4 form when you began with your employer to help them decide how much to withhold.
- You receive a W-2 form from your employer for the previous tax year that documents your total pay and the year's withholdings.
Under these circumstances, you'll file taxes like most Americans.
Most of the time, real estate agents are self-employed. Here are some clues you're independent:
- You pay estimated taxes quarterly.
- You have a written contract that says you are not treated as an employee for federal tax purposes.
- You receive a 1099-MISC from your brokerage for the previous tax year that documents your total pay.
If this is the case, you'll file as a self-employed individual.
"Pick Your Own 8 Hour Electives" Mississippi CE Package
Choose any 2 of the included courses to complete your required electives!
Alabama 15-Hour Real Estate CE Package for Salespersons
Satisfy all your continuing education requirements with 5 AREC-approved courses.
Alabama 60-Hour Premium Real Estate Pre-License Package
Includes mandatory pre-license training, license exam prep, and more!
Alabama 60-Hour Real Estate Pre-License Basic Package
Get AREC-approved pre-license training, plus free real estate math practice.
Arizona 24-Hour CE Agent Renewal Package
Satisfy all of Arizona’s sales agent continuing education requirements online.
Arizona 30-Hour CE Broker Renewal Package
Meet all CE requirements as a designated or delegated associate broker.
South Carolina Unit I: Real Estate Principles and Practices for Salespersons
Learn the laws that you will need to navigate in a successful career.
California 135 Hour Basic Salesperson Prelicense Package
Get required DRE-approved pre-license courses plus free real estate math practice.
California 135 Hour Premium Salesperson Prelicense Package
Includes mandatory pre-license training, state license exam prep, and more!
Why Are Taxes for Real Estate Agents Filed Differently?
Most Americans have a traditional employer-employee relationship. The employer is responsible for paying a portion of the tax on their employees' income (specifically, half of both Social Security and Medicare). They also withhold taxes from every paycheck, so you don't need to worry about it.
The real estate industry operates differently. Individual real estate agents work within a brokerage, but they're each considered the sole proprietor of their business. You have control over when you work, how much, and how you conduct business, but you also become responsible for paying your taxes on time, and you have to pay the portion that "employers" typically pay because you are your boss.
This is known as the Self-Employment tax.
When Do You File Your Taxes as a Self-Employed Real Estate Agent?
Self-employed real estate professionals must file their estimated income taxes "quarterly."
If the IRS didn't like to complicate our lives, "quarterly" taxes would mean paying taxes on each fiscal quarter two weeks after it ends. But they want to complicate things, so the filing deadlines only match up to an actual fiscal quarter for Q1. Everything else is skewed.
This makes the deadlines harder to remember, so mark your calendar. If you file late payments, the IRS will bill you for lost interest.
There are four deadlines per calendar year:
Taxes Due on Income Earned Between
September 1 and December 31 of the previous year
January 1 and March 31
|April 1 and May 31|
June 1 and August 31
What Tax Forms Do You Need As A Real Estate Agent?
Self-employed real estate agents need several IRS forms that most Americans don't have to worry about.
We mentioned the deadlines for quarterly taxes above, but how do you know how much to pay?
The IRS publishes a booklet called the 1040-ES (short for "estimated") that can help you determine the amount to pay for each period.
After the close of every tax year, your broker will fill out a 1099-MISC indicating how much money you made as an independent contractor.
It looks similar to a W-2 form since it shares the same purpose.
As a self-employed real estate agent, you'll fill in Form 1040 for your tax return like everyone else. The problem is that you have extra homework that other Americans can copy from their W-2.
The first extra form is 1040 Schedule C, which catalogs your business income and expenses. There will be a spot to copy over the information from your 1099-MISC for payment, and you'll use business expenses to calculate net profit. You'll copy this number onto your regular 1040 as "other income."
You must also fill out a 1040 Schedule SE, which calculates the "employer" part of your Social Security and Medicare tax. You'll copy the resulting number into the main 1040 form under "other taxes."
Your State's Income Tax Forms
You'll have to file for state income tax alongside federal in most states.
However, you don't pay a state-level income tax if you practice in Alaska, Florida, Nevada, South Dakota, Texas, Washington, or Wyoming.
What Tax Deductions Do Real Estate Agents Have?
As a sole proprietor, you can get tax relief for certain business-related purchases, but there are limits on what you can deduct and how many deductible expenses you can write off.
Possible deductible expenses include:
- Education. Continuing education, coaching, and real estate-related training could qualify as deductible.
- Marketing. Allowable deductions may include traditional marketing assets (like business cards, mailers, open house signage, flyers, and more) or digital marketing expenses (websites advertising, and more)
- Electronics and software. Your business laptop, phone, and software subscriptions may be deductible.
- Transportation. Vehicle-related expenses are deductible on the vehicle you use for business transportation, including purchase/lease costs, maintenance, and mileage.
- Licensing and memberships. Licensing and license renewal fees are deductible. So are association fees and your Multiple Listing Service (MLS).
- Insurance. You can deduct both general and professional liability insurance if you have your policy (i.e., not covered by your brokerage).
- Utilities. If you cover it personally, business internet, phone, and power bills are deductible.
- Gifts. You can deduct contributions, but only up to $25 per client per year ($50 for a couple).
- Work-related travel. Business-related trips like conferences, including airfare, lodging, and meals, can be deductible.
- Home office expenses. You can write off some costs if you use a portion of your home as an office space. How much will depend on the square footage and work performed there.
How To File Your Taxes as a Self-Employed Real Estate Professional
Filing taxes as a self-employed real estate agent or broker can get complicated, and mistakes on an IRS audit can cause an enormous headache. You should use an accountant or tax software to help get it right – and that's deductible, too!
You'll also want to keep your tax records, receipts, and other documentation for three years after filing a return (or seven years if you file a loss).