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Tax Tips for Realtors – How to SAVE BIG

  • Real Estate Agents and 1099s
  • If you are a real estate agent, there is a good chance that your broker pays you with a 1099 to your personal name. This means you are an independent contractor. What you may not know, is that the entire amount of your 1099 may be subject to pay Self-Employment Tax of 15%. Below we will show you business tips to help you save big on your taxes:
  • Create a Company For Your Income Earned as a Realtor
  • Common Real Estate Deductions
  • Retirement Planning
  • Create a Company For Your Commission – PA
  • In the real estate world, we can help you form a company (called a Professional Association or PA) that can accept real estate commissions from your broker or brokerage. The DBPR, which is the agency that governs all real estate licenses, allows you to register your company to legally receive commissions from your broker. This is a huge benefit to all realtors. And, we’re going to teach you why. But first let’s talk about self employment tax:
  • Self-Employment Tax – If you’ve received pay as a W-2 employee, you will see 2 common deductions on your paycheck 1) Social Security 6.2% 2) Medicare 1.45%. The total of these 2 percentages is 7.65%. Your employer, in this example, pays the exact same amount (7.65%) on your behalf. The total percentage of the employer (7.65%) and employee (7.65%) is 15.3%. When you get paid as a 1099 to your personal name, you are now responsible for both sides of the equation which is the entire amount of 15.3%. This is called Self-Employment Tax.
  • S-Corporation – If we create a PA for you, then your broker will begin paying all of your real estate earned commission to your PA instead of your personal name. We will then request the IRS to treat your new company (the PA) as an S-Corporation. This is the most important step of the process. We will submit the required forms to the IRS to make sure your company is treated as an S-Corporation. The S-Corporation has a tax benefit called Pass-Through Taxation.
  • DBPR Application – After we create the PA and change the classification, we will then file a required form to the DBPR which will register your PA and allow your broker to legally pay your commission to the PA instead of your personal name.
  • Save BIG – So, now that you have a PA that is also an S-Corporation, we can begin saving huge on your taxes. Your PA will file it’s own taxes separately. Since an S-Corporation is Pass-Through, the profit of your company is not entirely subject to Self-Employment Tax. Also, there are more allowable deductions on a company level than a personal level. Both of these reasons will most likely reduce your tax liability.
  • Less Liability – The fact that you are now operating as a business instead of an individual also means you are taking on less liability to your name.
  • More Prestigious Title – When you advertise your services, you will now advertise as a PA instead of a person. For example, let’s say your name was John Doe. Your PA name would be John Doe, PA. Adding those little letters to the end of your name indicates a title. And that usually makes you look more professional and prestigious.

Create an PATax Returns in USA

  • Common Real Estate Deductions
  • The good news about being an independent contractor is that you can write off a lot as expenses to your business or trade. Real Estate Agents usually have a ton of expenses they can deduct to their income. Below we will give you some examples of common real estate deductions. We are sure not all will apply, but it’s a good idea to know what is allowed and not allowed. This is one of the strongest ways you can reduce your tax liability. We’ll show you how:
  • Advertising Agent-Improvement Auto Expenses
    Business Travel Meals & Entertainment Communication
    Utilities Startup Expenses Employee or Support
    Health Insurance Home Office Professional Fees
    Retirement Selling Expenses Office Expenses

Create an PATax Returns in USA

  • Retirement Planning
  • Believe it or not, you can actually reduce your taxes today by investing in your future retirement. Yes, you heard that correctly. Uncle Sam is willing to let you have a deduction to your income by investing in a retirement plan. But not all retirement plans work the same. Below we will discuss some retirement strategies that will work to reduce your current tax liability.
  • SEP IRA – As an independent contractor, you may contribute up to 25% of your income, up to $54,000. That means $25,000 for someone who makes $100,000. This amount will be a deduction for your current year taxable income, as well as an investment for your future retirement.
  • Traditional IRA – This is the most common retirement account for realtors. It allows you to put away up to $5,500 for your retirement, which will also be used as a deduction for the current tax year.

Create an PATax Returns in USA