Entering the world of real estate can be exciting and overwhelming. As a new real estate agent, you are likely focused on building your client base and closing deals. However, there is another crucial aspect of your career that cannot be overlooked: taxes. Preparing for taxes can be daunting, but with the right approach, it can be manageable. This guide will help you navigate the tax landscape as a new real estate agent.
As a real estate agent, you are considered self-employed. This means you are responsible for paying your own taxes, which can include federal, state, and sometimes local taxes. Unlike traditional employees, taxes are not automatically withheld from your paychecks. Instead, you will need to set aside money throughout the year to cover your tax bill.
One of the biggest surprises for new agents is the self-employment tax. This tax is made up of Social Security and Medicare taxes for individuals who work for themselves. The self-employment tax rate is 15.3%. This can add up quickly, so it's essential to budget for it. Make sure to keep track of your earnings and expenses to calculate your tax liability accurately.
Since taxes are not withheld from your earnings, you will likely need to make estimated tax payments throughout the year. The IRS requires these payments if you expect to owe $1,000 or more in taxes. Generally, you should make payments quarterly, which means you will need to estimate your income and expenses for the year. This can feel like a guessing game, but keeping detailed records can help you make more accurate estimates.
One of the best ways to reduce your tax liability is by tracking your business expenses. As a real estate agent, you have many deductible expenses that can help lower your taxable income. Keeping detailed records of these expenses is crucial. It can save you money and make your tax filing process smoother.
Some common deductible expenses for real estate agents include:
By keeping track of these expenses, you can significantly reduce your taxable income. It's a good idea to keep receipts and use accounting software to help you stay organized.
In today's digital age, there are many tools available to help you manage your finances. One of the best options is Everlance, an app designed specifically for tracking expenses and mileage. With Everlance, you can easily log your expenses and categorize them, making tax time much easier. Plus, it can automatically track your mileage, which is a significant deduction for real estate agents.
Tax deductions and credits can significantly impact how much you owe at tax time. Understanding the difference between the two can help you maximize your tax savings.
Deductions reduce your taxable income, while credits reduce the amount of tax you owe. For example, if you have $10,000 in deductions, and your tax rate is 20%, you will save $2,000 on your taxes. On the other hand, a $1,000 tax credit directly reduces your tax bill by $1,000.
As a real estate agent, you can take advantage of various deductions, including:
Understanding these deductions can help you save money when filing your taxes. Be sure to consult with a tax professional to ensure you are taking advantage of all available deductions.
When it comes time to file your taxes, you have a few options. You can choose to do it yourself using tax software, or you can hire a tax professional. Each option has its pros and cons, and the best choice depends on your comfort level with tax preparation.
If you decide to file your taxes yourself, there are many tax software programs available that can help guide you through the process. These programs often have built-in checks to ensure you are claiming all eligible deductions and credits. However, keep in mind that tax laws can be complex, and mistakes can be costly so look for something with accuracy guaranteed, like Everlance's built in tax filing.
For those who prefer a hands-off approach, hiring a tax professional can be a wise investment. A tax professional can help you navigate the complexities of tax laws and ensure that you are maximizing your deductions. They can also provide valuable advice on tax planning for the future.
Tax preparation is not just about filing your taxes each year; it is also about planning for the future. As a new real estate agent, it is essential to think ahead and make strategic decisions that can benefit you in the long run.
As a self-employed individual, you have the option to set up a retirement account, such as a SEP IRA or a Solo 401(k). These accounts not only help you save for retirement but can also provide tax benefits. Contributions to these accounts are tax-deductible, which can lower your taxable income.
Tax laws are constantly changing, so staying informed is crucial. Consider attending workshops or webinars focused on taxes for real estate agents. This can help you stay updated on the latest tax laws and strategies to save money.
Preparing for taxes as a new real estate agent may seem overwhelming, but with the right approach, it can be manageable. Understanding your tax obligations, keeping track of your expenses, and planning for the future are all essential steps in this process. Utilizing tools like Everlance can simplify your record-keeping, making tax time less stressful. Remember, staying informed and organized is key to successfully navigating the tax landscape.
Everlance automatically tracks every mile & expense so you can focus on showing homes, not receipts.
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Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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