Should a Real Estate Agent Pay Taxes Quarterly?

Quarterly Estimated Taxes

Do real estate agents need to pay taxes quarterly?

What are Quarterly Estimated Taxes?

IRS rules require that you make quarterly payments on income that is not subject to withholding.

W-2 income has taxes withheld. But your real estate commissions are paid on a 1099 basis, and o one is 'with-holding' or taking any taxes out of your income and sending it to the IRS for you.

This is also true on rental income, or alimony, or self employment income.

Our tax system is based on the English "Pay as you go" system. In the old country, you were expected to pay taxes quarterly.

In the US, you'll be penalized if you wait until April 15th to "settle up" with the IRS.

Who Needs to Pay Estimated Tax?

The basic rule is that you must make quarterly payments if you expect to owe at least $1,000 in tax in 2016 and you expect your withholding and credits to be less than the smaller of:

  1. 90% of the tax shown on your 2018 return, or
  2. 100% of the tax shown on your 2017 tax return.

When are Estimated Tax Payments due?

1st Quarter  Due April 15

2nd Quarter  Due June 15

3rd Quarter   Due Sept 15

4th Quarter   Due Jan 15 (of the following year)

Note that the IRS calendar is a bit 'wonky'. The four 'quarterly' deadlines aren't all exactly 3 months apart from each other!

Why are they called "Estimated" Taxes?

The IRS doesn't know how much you're going to make this year. So they leave it up to you to estimate what your taxable income will be for the year, calculate the projected tax on your income, and then pay the tax in four quarterly payments.

 If you under-estimate your income, and your tax, you could be penalized.

How to calculate "Estimated" Taxes

If you had a tax pro help you prepare your taxes in 2017, his or her software likely prepared four quarterly tax payment coupons for you for 2018.

The only problem is that the coupons were based on 2017 tax rates. Tax reform has reduced the tax rates for 2018.

So it's probably best that you look to a professional to help you project this years numbers under the new tax laws. If you'd like to connect with me; I'm here to help.