How To Prepare Tax Return For Real Estate Agent

Learn how to prepare tax return for real estate agents with some simple tips. First understand that all real estate agents must prepare tax returns if there is income of $400 or more during the tax year. A real estate agent is considered to be self-employed and must prepare tax returns and pay social security also. Since the real estate agent has no tax taken out of the commission check, the agent is responsible for all taxes owed.

  1. Filing Online or Through a Local Tax Preparer.  The first step in preparing a tax return for real estate agent is to choose which method of filing is best. There are many online services that offer step by step guidance for a fee and then the IRS has an E-File service that is free if the taxpayer fits into their guidelines. The E-File can not be used if the individual lives overseas. There is a huge debate about whether a CPA can offer better guidance than a tax preparer. This is a decision an individual must make on his own.
  2. Choosing Which Form to Use. The real estate agent can file a 1040, 1040A or 1040EZ form. Depending on the deductions being taken, the real estate agent will usually choose the 1040 as all agents have deductions. These deductions could be business cards, signs, gasoline, gifts for clients, etc.
  3. Basic information on the Form. The first information on the income tax form is the name of the real estate agent and spouse. The individual must also fill in the social security number, number of dependents and the home address.
  4. Deductions. One of the largest tasks for the real estate agent is to figure in all the deductions from the year that are legal. A home office is one of the red flags that may trigger an audit, so in many cases a home office will be avoided. There are many other deductions that are allowed and are reasonable, such as: car expenses, mileage, stationery, office expenses, Board of Realtor fees, state fees or requirements, gifts to clients at the close of the sale, bank fees, credit card expenses pertaining to the business, meals and travel expenses pertaining to the business.
  5. Self-Employment Taxes. Once the deduction are taken and subtracted from the income, the net income is achieved. Self-employment taxes are paid on the net income at a rate of 15.3% (social security and Medicare). This is usually the largest expense for sole proprietors.
  6. Credits Added in. The real estate agent can also use their credits towards the final amount owed such as child care, education and earned income credit. Both the online services and CPA's can aid in the rules and regulations for these credits. Charity donations are deductible also along with receipts from authorized corporations and companies approved by the IRS.
  7. Final Calculations.  After the deductions are taken, the self-employment tax is figured and all the credits are calculated, a net income can be arrived at.  The federal tax owed is figured once the personal exemptions are calculated. The personal exemptions will include the spouse (if filing jointly) and all the dependents. 
  8. Estimated Taxes. Should the real estate agent owe more than $1000, estimated taxes must be paid during the year. Estimated taxes must be paid four times a year on: April 15th, June 15th, September 15th and January 15th of the following year. The estimated tax is mailed in along with form 1040-ES with a cashier check made out to the IRS and your social security number noted on the check and form.
  9. The Tax Owed. The final amount owed to the IRS can be sent by mail or deducted from a bank account. Should the agent be unable to pay the amount owed, there are financing programs. These programs set up by the IRS are high in interest and penalties, so in many cases it is better to put the tax owed on a credit card.
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