Agents Are 1099 Contractors
The vast majority of real estate agents are legally considered self-employed or 1099 contractors. They are not employees. And this distinction comes with many differences in how taxes are paid.
Employees have money withheld from their paychecks by their employers to pay their income taxes. The money is taken from the earned wages and sent to the government before the employee even sees it. Then, when employees file their annual tax returns, they’re making sure everything matches with the US government. They often times get money given back to them because they overpaid. This is unfortunately not the case for many real estate agents. This is where paying estimated taxes to the best of your ability is important so you don't have a big tax bill at the end of the year.
What Are Estimated Taxes?
Real estate agents are responsible for paying self-employment taxes. Plus, you also have to pay income tax. Unlike W-2 employees, you don’t have an employer withholding taxes from your paycheck. As a result, you’re going to owe the IRS money at the end of the year. However, the IRS really doesn’t want to wait twelve months for its money, so they expect you to make quarterly estimated tax payments in advance.
This might seem tricky at first, but a software tool like Symba makes it a breeze. Symba will automatically tell you how much you owe in taxes based on your income and expenses. We also automatically export your tax forms to make it a seamless experience. Try it out!