Staying out of trouble with the IRS?
Real estate agents are notoriously in trouble with their taxes. There are a couple reasons for this:
- We don’t have any withholdings taken out of our commissions. If you were an employee with a “real job” then your employer would be taking out withholdings for the amount you owe for federal, state, local, and Social Security/Medicare. However, we are self-employed. So, outof our own self-discipline, we need to set aside money to keep up with taxes.
- We pay self-employment tax. When you’re an employee you have social security and Medicare taken out of your check. Your employer matches this amount before sending to the IRS. When you’re self-employed then YOU are matching the amount. Everything that you make (after deductions) is subject to a 15.3% self employment tax. Then you pay your income tax on top of that. That’s a decent chunk of money so don’t forget about it!
So, how do you stay out of trouble?
The way the IRS keeps employees out of trouble is they require their employer to withhold taxes on their behalf. It’s not optional. Something to consider would be asking your broker if they would take a percentage of every closing and put it to a separate account (at Clarity Realty we are glad to do that). Since it’s taken off the top you never see it and aren’t tempted to spend it, and the money is available when your quarterly estimates come due.
The IRS is someone you don’t want to be in debt to, so hopefully this will help you to keep in front of it.