04.15.2024 PropStream
Important: PropStream doesn’t offer tax advice. This article is strictly informational. Real estate agents should consult a tax professional for help filing their taxes and any tax-related questions.
As a real estate agent, filing your taxes can be tricky. This is because most agents work on a commission basis and are considered self-employed by the Internal Revenue Service (IRS) as a result. This means the tax filing process is often different than it is for regular employees.
In this step-by-step guide, we’ll go over how to file your taxes as a real estate agent to help make your life a little easier. And who knows? Maybe you’ll learn about some tax breaks you didn’t know about!
Table of Contents
- Determine Your Employment Status
- Gather Your Income and Expense Records
- See What Tax Deductions/Credits You Qualify For
- File Your Federal and State Income Taxes
- Plan for Next Year's Quarterly Tax Payments
- Final Tips
1. Determine Your Employment Status
First, you should determine your employment status. Though most agents are considered self-employed, this isn’t always the case. Sometimes agents work for brokerages that pay them an actual salary. In this case, your employer would provide you with a W2 form which you can use to file your taxes.
Tip: If you’re unsure about your employment status, review your work agreement. If it labels you an “independent contractor,” you are considered self-employed.
It’s important to understand your employment status because the process of filing your taxes as a self-employed agent is a bit more involved than it is for employees.
2. Gather Your Income and Expense Records
Unlike W2 employees (whose income is kept track of by their employer), self-employed agents must keep track of their own income (and expenses to maximize their deductible income).
Income Records
As a self-employed agent, you can report much of your income with the help of 1099 forms. These show how much a single company (e.g., your brokerage) has paid you in a tax year. If a company has paid you $600 or more over the year, they must issue you a 1099 form by February 15.
There are a few different types of 1099 forms for various types of income:
| 1099-NEC | This reports non-employee income (e.g., agent commissions). It was introduced in 2020 to replace the 1099 MISC. |
| 1099-MISC | This reports miscellaneous income (e.g., prizes and awards), not including employee and non-employee income (before 2020, it did include non-employee income). |
| 1099-DIV | This reports any dividends and distributions you made on investments. |
| 1099-INT | This reports any interest you earned from checking, savings, or other bank accounts. |
| 1099-R | This reports any distributions you received from retirement accounts, insurance contracts, or annuities. |
For most agents, 1099-NEC forms will report most of their income.
Keep in mind, however, that some income (e.g., side hustle or rental income) may not be reported on any of the forms listed above. In this case, the IRS requires that you report this income on your tax return manually.
Expense Records
As a self-employed agent, you should keep detailed records of all your business expenses to help you qualify for tax deductions (more on this in the next section).
That means keeping receipts, invoices, subscription confirmations, and more—anything that documents a business expenditure. When in doubt, save it. It’s better to have more than enough records than too few.
You may also receive 1098 forms from lenders and educational institutions to help you report certain tax-deductible expenses. These forms include:
| 1098 | This reports any mortgage interest you paid totaling $600 or more. |
| 1098-E | This reports any student loan interest you paid totaling $600 or more. |
| 1098-T | This reports any tuition and required course material you paid for to enroll in a university, college, or vocational school. |
3. See What Tax Deductions and Tax Credits You Qualify For
Agents may qualify for various tax deductions and tax credits. Though eligibility varies, here are some of the most common ones to look out for:
Tax Deductions
As a general rule, agents can typically deduct any business expenses from their taxable income that are ordinary and necessary, directly related to their business, and a reasonable amount. Such business expenses may include the following:
- Agent licensing and license renewal fees
- Agent training, coaching, and education costs
- Brokerage, multiple listing service (MLS), and REALTOR® association dues
- Marketing expenses (e.g., a website, online ad campaigns, signage, business cards, postcards, flyers, and other advertising)
- Subscriptions (e.g., to industry news publications, marketing, accounting, or real estate software)
- Home office expenses, whether you rent or own your home
- Office supplies, including computers, phones, printers, paper, pens, etc.
- Business travel, including airfare and lodging
- Transportation, including car gas, maintenance, repairs, parking, etc.
- Gifts to clients (up to $25 per client per year)
- Errors and Omissions (E&O) insurance
Agents may get additional tax breaks through the Protecting American From Tax Hikes (PATH) Act, which allows you to immediately deduct all or a greater portion of some business-related purchases. For example, it could potentially help you write off up to $27,000 of the price of a new car.
Tax Credits
Depending on your income, you may also be eligible for certain tax credits. These include the following:
| Earned Income Tax Credit (EITC) | This gives a tax break to low- and moderate-income workers and families. |
| Retirement Savings Contribution Credit (Saver’s Credit) | This gives a tax break to those who contribute to an individual retirement account (IRA) or employer-sponsored retirement plan. |
| Child Tax Credit | This gives a tax break to parents of children under the age of 17 (up to $2,000 per child). |
| Child and Dependent Care Credit | This gives a tax break to parents who pay for childcare (or the care of dependent adults). |
| Education Credit | This gives a tax break to those paying for higher education. The credit comes in two forms: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). |
| Residential Energy Property Credit | This gives a tax break to those who made their home more energy efficient (e.g., by installing solar panels or a solar water heater). |
This isn’t an exhaustive list of tax deductions and tax credits for agents, but it’s a good place to start. We recommend consulting a tax professional to avoid leaving any money on the table.
4. File Your Federal (and State) Income Taxes
When it comes to actually filing your federal income taxes (as a self-employed agent), you will need to fill out Form 1040. The deadline to submit this form to the IRS falls on or just after April 15 (the deadline to file your 2022 taxes is April 18).
Most states also require you to file state income taxes, in which case, you will also need to fill out and submit your state’s income tax form.
However, not all states have a state income tax. There are currently eight states that don’t levy a state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming (New Hampshire will join this list starting in 2027. It currently taxes investment and interest income only, but this tax is being phased out beginning in 2023).
You can file your taxes by mail or electronically. However, most agents choose to hire a tax professional or use tax software to prepare and submit their tax returns for them. Why? Tax professionals can save you a lot of time, stress, and even money by letting you know about tax breaks and strategies you may not have known about otherwise.
5. Schedule Next Year’s Quarterly Tax Payments
This step isn’t necessarily part of filing your taxes, but it’s important preparation for filing your taxes next year.
You might be surprised to learn that the IRS requires self-employed individuals to pay estimated quarterly tax payments throughout the year in some cases—not just at the end. These quarterly payments are due on April 15, June 15, September 15, and January 15 (of the following year).
Not sure how much you owe in taxes each quarter? You can use Form 1040-ES to estimate your quarterly taxes. If you over- or underpay a little, that’s alright. So long as you pay at least 90% of your owed taxes throughout the year, you can make up the difference after you file your taxes the following year.
That said, you should avoid missing quarterly payment deadlines. Otherwise, you may incur fines and penalties. To see if you owe a penalty (and how much), you can use Form 2210.
Final Tips
Now that you know how to file your taxes as an agent, here are some final tips that may help you in the process:
Keep detailed records. You never know when the IRS might choose to audit you. If that happens, the burden of proof is on you to prove that the information you put on your tax return is accurate.
Don’t mix personal and business finances. Create separate bank accounts for each, so it’s easier to keep track of your business income and expenses.
Fill out tax forms carefully. Common mistakes include miscalculations, misspellings, and missing signatures. Always double-check your tax forms to make sure everything is accurate.
Keep up with tax code changes. Doing so helps ensure you file your taxes correctly and claim any tax breaks you are eligible for. This is especially important if you are filing on your own.
Knowing how to file your taxes as a real estate agent can be a valuable skill. Learn how to do it right, and it could benefit you for many years to come!
