How To File Your Taxes as A Real Estate Agent

Tax season can be daunting for real estate agents, especially with fluctuating incomes and multiple expenses. It can be even harder for new agents, who may only be used to being a W-4 employee. Understanding how to properly file your taxes can save you time, money, and stress.

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.

Determine if You Are Self-Employed or An Employee

In the real estate industry, the majority of agents operate as independent contractors, enjoying the freedom of being their own boss—one of the career’s biggest appeals. However, there are a small number of agents who work as employees under traditional employment arrangements.

Not sure which category you fall into? Here's how to determine if you're self-employed or employed.

Employed Agents

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.

Self-Employed Agents

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.

The Different Tax Filings Process for Real Estate Agents

The real estate industry operates differently than most others. Most workers have a traditional employer-employee relationship, where 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.

Individual real estate agents often work within a brokerage, but they're each considered the sole proprietor of their own business. You have control over when you work, how much, and how you conduct business, but with that comes the responsibility 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 To File Your Taxes as a Self-Employed Real Estate Agent

Self-employed real estate professionals must file their estimated income taxes "quarterly." The Internal Revenue Service (IRS) treats self-employed individuals and small businesses differently, so it’s not as clear as regular quarterly deadlines.

For a normal business, paying quarterly taxes would mean paying them two weeks after the end of each fiscal quarter. This is not how it works for individual real estate agents; the IRS has unique quarterly deadlines in their case.

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, and it is best to note them from the IRS website directly.

Keep Accurate Records Throughout the Year

Accurate records are one of the greatest advantages you can have when it’s time to file your taxes. It takes a lot of work before you see a commission check as a real estate agent or broker, and with that work comes plenty of paperwork. You have to market yourself as well as a property, not to mention licensing courses, association fees, bookkeeping, equipment, and technological tools.

The majority of your expenses are tax deductible and have to be tracked all year long.  You don't have to spend all of your time memorizing tax returns in order to maintain accurate records.

Even your offline tax records can be kept organized with the help of a variety of online resources. You may maintain accurate tax records by using a few tools, such as the QuickBooks self-employed app, to manage your costs. Organize your paper receipts and income records, including checks and credit card statements, by setting up a simple filing system. Certain records must be retained for several years.

If you don't want to be caught scrambling at the last minute, maintain a healthy discipline when it comes to keeping important information on hand and organized.

Consider Hiring a Tax Professional

It’s okay to admit you don’t know what you’re doing. There is nothing wrong with hiring a tax professional when you feel in over your head. Particularly if you are self-employed, tax professionals can be quite helpful since they help to relieve the tension involved in paying your taxes.

As a real estate agent, you may have to spend money to make money, and tax preparation services can be costly. Those who want to get the most out of their refunds may avoid spending the money.

Real estate agents might consider employing a tax specialist to improve their financial management. Some tax professionals specialize in real estate and can help with tax planning, financial statement production, and regulatory compliance. Furthermore, tax professionals can save real estate brokers time by handling all aspects of tax preparation, including record-keeping and return filing.

Real estate agents frequently underestimate the value of engaging a certified public accountant for tax preparation. However, with constantly changing tax laws, you'll need all the advice you can get to manage regulations and maximize tax savings.

An experienced tax professional can offer tailored methods for lowering taxable income, increasing depreciation deductions, and taking advantage of tax breaks. They can also ensure compliance with IRS regulations and reduce the likelihood of audit penalties.

Tax Forms 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.

Form 1040-ES

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.

1099-MISC

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.

Form 1040

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 income 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.

Common Mistakes Agents Make When Filing Taxes

Mistakes in tax filing can happen to even the most savvy real estate agent. You have everything on the following list ready to go by the deadline this year.

Overlooking Tax Deductions

Every year, real estate agents frequently incur significant deductible business expenses, including both small and major expenditures like commissions, advertising, car usage, and home office space. You can also write off costs such as professional membership fees, license fees, and training or education beyond the minimal criteria set by the state.

Overwhelmed by Tax Filing Documents

The many forms, documents, and receipts needed for tax preparation might be daunting. Compile firm earnings, receipts, expenses, and deductions to guarantee correctness. Accurate tax filing is ensured by collecting these documents. Again, you should consider hiring an accountant. A skilled accountant is a wise investment because they can help organize documents and receipts and offer assistance during IRS audits.

Late Tax Filing

Due to several filing dates for self-employed professionals and commissions that are not paid on a consistent schedule, busy real estate agents frequently miss tax filing deadlines. In January, April, June, and September, self-employed real estate brokers are required to pay quarterly taxes on their previous quarter's income. Put up reminders and compute expected tax payments to avoid interest and late fines.

Tax Deductions You Have as a Real Estate Agent

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 (website 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. Exactly 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 can lead to an IRS audit, which can only get more burdensome. You should consider using 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).

Get Started With Agent Campus

Knowing how and when to file your taxes is half the battle. Remember, when in doubt, consult a professional, they can point you in the right direction and help you avoid costly mistakes.

Finding your footing as a real estate agent can be challenging, especially if this is your first year. If we don't want you to stress out over taxes, we don't want you to skimp on training. At 360training, we offer extensive pre-license training courses so you can become the best real estate agent that you can be. If you are already an established agent, 360training also offers continuing education courses, so you can always stay up-to-date on your CE requirements. View our full catalog of available courses on our website today! 

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:

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.

Form 1040-ES

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.

1099-MISC

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. 

Form 1040

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).