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Reply with quote  #1 
I am taking the real estate prelicensing course right now and gathering as much information as possible. I am very excited to start my real estate career. I do have some concerns about preparing for taxes. As of now, I have always had my taxes deducted on each paycheck (I've never been self-employed). I have researched what tax deductions I should be able to use and am prepared to keep track of those. My main concern is the amount I should set aside from each commission check for taxes. Is there a certain pertainage I should set aside that would be on the safe side? I would rather overpay a little than underpay and have penalties... or get stuck with a huge bill from the IRS.

Thank you!
Andrew Schwartz CPA
Reply with quote  #2 
Great Question.

When you are self-employed, it's up to you to pay your own taxes.  The good news is the you are not taxed on 100% of the commissions you recieive each year.  Instead, expect to pay taxes on your commssions less any expenses incurred during the year that are "ordinary" and "necessary" in connection with being a realtor.

On your real estate commissions less expenses, you will owe federal income taxes, state income taxes, and another tax known as the self-employment tax.  Here is what I wrote is an article a few years back:

You're subject to an additional tax known as the "self-employment tax".  When you work as an employee, your employer withholds social security and Medicare taxes from your pay at a rate of 7.65%, and then matches the taxes withheld.  So the government gets 15.3 cents for every dollar you earn.  When you're self-employed, you're required to report and pay that 15.3% tax, known as the self-employment tax, as part of your federal tax return.  (Your self-employment tax rate goes down to 2.9% once your combined salary and net moonlighting income exceeds $106,800 in 2010.)




That being said, we generally recommend that our clients who are self-employed set aside between 33% and 40% of their net self-employment income for taxes.


You can read the complete article called Memo to Moonlighters at:


I hope this information helps you out.

Reply with quote  #3 

Thank you so much!

Don’t forget the things you once you owned. Treasure the things you can’t get. Don't give up the things that belong to you and keep those lost things in memory.

Happiness is not about being immortal nor having food or rights in one's hand. It’s about having each tiny wish come true, or having something to eat when you are hungry or having someone's love when you need love.
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