The National Association of Realtors in the US reported in 2016 that the average age of new association members is 43. This suggests that many first-time real estate agents are entering the profession as a second career, after significant time working in another field.
Whether you’re transitioning your career or you’re diving into your first real job, you may be new to managing your own cash flow, paying quarterly taxes and shifting your mindset from employee to self-employed. Here’s a guide to help plan for and pay your quarterly taxes.
First, understand your responsibilities
To be a real estate agent, you must be a jack-of-all-trades. Develop your strategy to tackle your responsibilities by asking yourself these questions:
- Marketing — How do you market yourself and your properties? What media or technology must be used?
- Advertising — Where and how do you advertise properties to gain maximum exposure for the least cost? What will catch a buyer or seller’s eye?
- Office management — How do you keep yourself organized and efficient? How do you manage costs for a home office? What supplies do you buy?
- Sales — How do you learn about cold calling, following up on leads, negotiating commissions and closing deals?
- Accounting — How do you track sales and expenses, maintain receipts, file accurate and on-time taxes?
- Benefits — How do you acquire health insurance, learn about health insurance deductions, and continue contributing to a retirement plan?
Maximize your deductions and minimize your expenses. These goals will keep you on the critical path to financial gain.
Second, understand estimated tax
As a real estate agent, you are considered self-employed by the CRA, even though you will likely work under a particular brokerage. This means you should learn the basics of estimated tax, since you’ll be responsible for your own taxes.
You can estimate your self-employment tax using an online calculator.
Third, develop and follow sound financial practices
Some brokerages may, depending on your location, withhold taxes, measured on the gross income of the business. Check online for your federal and provincial income tax rates and requirements. Keep your real estate career in the black from the get-go with the following practices.
Get a separate bank account.
The easiest way to keep your real estate income and expenses from getting mixed with your household budget is to create a separate business checking account. Any profit you want to use to pay your household expenses can be considered a draw that you can transfer into your household account.
Track every possible deduction.
Many agents, new to being self-employed, don’t realize the vast array of what is considered a possible deduction according to the CRA. To understand the full details of what is considered a qualified deduction, consult a tax professional. Keep records and files of all expenses.
Pay taxes accurately and on-time.
Employers pay your payroll taxes, and they, just like you, pay into employment and health insurance. But when you’re self-employed, you pay both shares.
The CRA requires quarterly payments. Here’s how to calculate your quarterly taxes:
- Determine your net income.
- Calculate your self-employment tax.
- Determine your itemizations.
- Subtract your personal exemption.
- Determine your federal tax rate.
- Subtract any tax credits.
- Divide the tax due by the four quarters.
This is your estimated quarterly tax. Payments are easy to make online or by phone.
You have a lot to master to be a successful agent. But you don’t want to spend valuable lead-sourcing or sales-negotiation time fiddling with your receipts or worrying about taxes.
If you don’t want to hire a tax professional right away, try a free trial of an easy-to-use financial software. QuickBooks Self-Employed can help you capture receipts, find deductions, log your mileage and calculate and file your quarterly taxes. Check it out and sign on if it’s a good fit for you.