Starting a new business can present the proprietors with challenges that they are simply not prepared for. Tax compliance is often one of them. What is often times the biggest yearly expense of a business is often not planned for.
For some reason certain professions are slower than others when it comes to recognizing the financial obligation they are creating as they earn income. The real estate professional seems to fit into this group.
As a group the real estate agents that I have come to know are shocked by the level of organization, documentation and effort required to file a compliant tax return. Shock usually turns into full scale horror when they come to realize the amount of tax liability their level of income generates.
Here are some common sense considerations for the start-up real estate professional or any commission based contractor:
- In the eyes of the Federal and State Governments you are operating a small business and are expected to maintain business records of financial performance.
- Your yearly tax expense will more than likely be the biggest expense item of your business activity. Don’t wait until year end for your accountant to figure out how much you owe.
- Your income is subject to self-employment tax. As a self-employed individual you pay both the employee share and employer share. A full 15.3% on earnings up to $127,200 in 2017. This is in addition to the Federal and State income tax your net income generates.
- Properly supported deductions are vital to help reduce taxable income. Proper documentation has a very specific meaning as it relates to supporting deductions on a tax return. It requires planning, organization and purposeful follow-through with specific actions on a day to day basis as you conduct your business activity.
- Revenue projections on a quarterly basis for the purpose of setting aside funds for estimated tax payments is prudent cash management. Your tax bill comes due every time you earn a commission and is expected to be paid every quarter. If you are not making payments as you go along you are in store for a very unpleasant experience at year end.
If you are in real estate, or if you are a commissioned based contractor of any kind your success depends on getting ahead of your compliance requirements and tax obligations.
If you want to learn more contact us at 732-739-2632
[ninja_form id=2]