Independent Contractors, and other 1099 type individuals such as Real Estate agents are in a unique position compared with more traditional employees. They are not subject to normal tax withholdings, and are responsible for managing their own tax payment and planning. This can create a surprising burden for those focused on the day to day challenges of keeping up with their professional responsibilities.
We offer the 3 steps to help you prepare. These are the same steps that we follow to provide services for our Agents and independent contractors to help them be successful throughout the year and at tax time.
1. Get organized
There is a lot to this, but something is better than nothing. Your organization system should be automated, and pain free. The easy way to do this, is to have a separate; card or bank account (Preferably) where all business transactions flow. This means only business, if it is a separate personal checking account, or a business checking, separating personal from business will help a software solution to easily classify transactions without you having to identify all the personal ones to exclude.
We recommend Freshbooks. It was designed for low complexity businesses, real estate agents, and independent contractors. It uses a feed from your bank to capture transactions. Easy ones like your morning coffee it classifies itself, other ones can be classified quickly and easily. It also integrates with MileIQ to track mileage automatically.
By getting organized you can more clearly identify how much money you have made and your deductible expenses. Which leads us to tip #2.
2. Plan ahead
There are a couple ways to do this, a simple method is to use a tax calculator to estimate your taxes and set the cash aside in a savings account. You can use these calculators, but recognize your final tax liability may be more or less. The goal here is to have cash available to pay your taxes, and reduce the impact of your tax liability at year end.
The other way to manage this is to make quarterly tax payments to the IRS, there are some rules related to this, so do your due diligence, but you can fill out a 1040-ES and make your payments online to the IRS here.
3. Maximize deductions
Know your deductions and track them throughout the year. We have more details on them in our blog 10 Tax tips for Real Estate Agents to Start Saving Right Now, you need to know them, track them throughout the year, and have all the supporting documentation consolidated in one place. Using software like Freshbooks, can accomplish this for you.
A final, rarely discussed method of tax savings available to independent contractors is called the Simplified Employee Pension or SEP IRA is available to Real Estate Agents, and other 1099 individuals. This can be a powerful way to both save for retirement and create a truly significant tax deduction. That deduction can be as much as $54,000 in 2017, based upon your contributions.
- Get organized
- Plan ahead
- Maximize deductions
However you accomplish this, you will be better off than if you hadn’t.
It is important to do this sooner rather than later, it takes time to get it right, and the year end is less than 2 months away, or less depending on when you read this.
At Wilson Lake we recognize a few things about Real Estate Agents, and independent contractors, specifically about their time:
- It is the most scarce resource
- Everything above still takes time to learn
- No matter how easy, it takes precious time to execute
- Time spent on tax preparation is time not selling, or caring for clients
- Time spent working is time spent away from living your life
We do offer services to Agents and independent contractors, where we manage the above so that you can focus on higher return tasks. When someone buys our services they aren’t paying for compliance and planning, they are buying their own time back, and getting a financial partner to help them be successful.
If you are interested in learning more about how we can help you, download our one-pager, which describes our services:
You can also contact us directly by filling out the short form below.
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Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate legal professional, financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.