For all you high rollers in real estate

[cs]

How do you handle commision checks and taxes?

Do you have a seperate account that you put a portion of the commision check into for taxes? What do you pull out, say maybe 20%?

Chad

[Popeye]

i dunno

[ 10-03-2005, 01:40 PM: Message edited by: popeye ]

[brad9798]

Depends on how you think you'll make ...

I'd separate AT LEAST 20%.

Perhaps even 25-30%.

As an independent contractor (1099 'employee') EVERYTHING is a write-off.

Driving to show a house- yes
Lunch- yes
Home office- yes (square footage, utilities, etc.)
Car expenses- yes

Etc., etc.

Perhaps, assuming you're talking about your wife, her company could W-2 her (she'd have to fill out a W-4 for state and Federal, though).

Some will and some will not ... it just depends.

Brad

[Bruce Hooke]

If you know your likely marginal tax rate (the amount you pay on the last dollar you earn) that provides a good starting point, but do not forget to set aside for Social Security and so on too ("Self-Employment Tax" in the IRS lingo IIRC). If you are self-employed, Social Security and the associated payments take a big chunck out of your income because you are paying both the employee's and the employer's share. Do note that half of these payments are deductible from your income so there is at least a small offset there.

Estimated taxes are the next "fun" thing you've got to deal with if you are self-employed and keeping good track of where you stand with estimated taxes will also help you with your budgeting. What I have done is set up a spread sheet that I update each quarter to figure out how much I should pay in estimated taxes. It was a bit of work setting it up, but having done that work it is fairly easy to see where things stand.

P.S. I do not know real-estate that well but I am assuming your wife is treated as being self-employed (something I am very familiar with), otherwise I'd assume that commissions would be treated similarly to bonus pay and taxes would be withheld. If I am wrong about this then what I said above may be irrelevant.

[Bruce Hooke]

Another P.S. -- Look carefully at the Home Office deduction rules if you plan to claim that deduction. The rules for qualifying for that deduction are much stricter than they used to be.

[Alan D. Hyde]

If you do your own taxes--- and, in my opinion, there's much to be said for it--- then get out a 1040 form NOW, and make up some reasonable assumptions for your wife's income and expenses, and fill them out now, as a learning exercise.

Do a careful job. You can get clean copies of last year's forms by putting IRS Form 1040 --- or whatever it is you need--- into the google search box and doing a web search.

Look at the IRS Form 1040 Instructions and the IRS Form 1040 Schedule C Instructions and the IRS Form 1040 Schedule SE Instructions and figure them out--- it'll be worth your while to do so.

Also, do a web search on Section 179 Property GVWR.

You'll like what you find there...

Alan

A link---

http://www.bnatax.com/tm/2310_500_ClientLetter.rtf

and an excerpt---

"Vehicles rated at higher than the weights set out above (i.e. over 6,000 lbs. GVWR--- includes most full size pickup trucks--- truck weight + rated load weight) are not subject to the lower Section 280F limitation. Instead, these vehicles are subject to the Section 179 set-dollar limit of $100,000 in 2003 and $102,000 in 2004. This is the so-called SUV loophole and, if all the qualifications are met, it allows taxpayers to deduct the (entire) cost of a heavy vehicle used in a business (in one year)." The parentheticals are mine...

[ 10-03-2005, 03:00 PM: Message edited by: Alan D. Hyde ]

[Joe (SoCal)]

I'm seriously looking into a separate company to handle my commissions. before I started my own firm and was working at another firm I formed a S Corp in Delaware to handle my commissions. hired a tax attorney to keep my taxes low and sufficient write offs. Commission checks were written from the company I worked to my S corp as a normal vendor. I'm working on doing the exact same thing with my commissions from real estate. Since all RE agents are independent contractors and not employees, we are required to pay all our own taxes. It makes sense to get the corporate umbrella protection if you are going to take all the income with no taxes taken out

Edited to add are we looking at a first closing ?? If so tell your wife congrats one you get a hang of the first one they start happening more and more frequent. Good Job she pulled it off faster than most. Hmmm I might have competition tell her to stay away from my market

[ 10-03-2005, 02:52 PM: Message edited by: Joe ( Cold Spring on Hudson ) ]

[cs]

Joe, her first closing was last Wed. She just set up a seperate account to handle her commisions today and is trying to get a hold of the accountant to get his advice. I'm trying to get a feel for what happens myself.

BTW Joe I guess you missed where I was talking earlier in another thread about a potential deal on a 3 million dollar apartment complex. That would be sweet.

Chad

[Alan D. Hyde]

Joe, my comments on Section 179 property apply even more to you...

Alan

[George Roberts]

cs ---

Pay your quarterly tax payments. There are forms and instructions for this on the IRS website.

Use the safe harbor provision. Pay in 100% of last year's tax by the due date. (110% if your income is over $100k.)

Find a nice CPA who will do your taxes and she will tell you each quarter how much you need to pay in the quarter and how much you need to come up with on April 15.

We keep our tax payments in a CD at the bank that is attached to our checking account.

[Dan McCosh]

Turbotax calculates estimated quarterly payments based on current income.

[Bob Cleek]

The more money you make, the more taxes you pay. Never could figure out why people bitched about taxes, since it only means they were making bucks! The trick is not to OVERPAY. Plan for those deductions. So much for our "kinder gentler" IRS, no?