A Few Critical Money Tips for Real Estate Agents
When you’re self employed, YOU are responsible for more than you think. As an employee, which you may have been familiar with up until the point you decided to become self employed, your employer handled your taxes and social security for you.
Now that you’re self employed, you MUST have a simple roadmap to account for what you’ll owe the government simply for doing business.
Tip #1: Taxes and Crap Like That
When you get your first commission check, or your next commission check, for those of you who have not planned well, you will apply the following formula to the check. As an example, I’ll use a $100,000 sale with a co-broke of 3%, you being the buyer’s representative, without the broker’s cut considered in the calculations to make round numbers and .
On that $100,000 home, you earn a 3% co-broke, which is $3000.00. You dance your way to the bank, deposit the $3000.00 and have a jolly old time at happy hour with your clients and friends.
Did you really make $3000.00? No. You didn’t, because you MUST set aside a portion of that money for self employment tax and income mcc4tax. So, a basic rule of thumb for a new agent who isn’t sure what their tax bracket will be would be to put 30% of the gross income in a separate basic, plain jane savings account. So, on your $3000.00 check, you put $900.00 away for the piper…whom you’ll pay…quarterly. Isn’t that fun? Look, self employment tax is 15.3% as it is, and that’s on TOP of your tax bracket. So do yourself a favor. Plan according to what you think you’ll make. It’s nearly impossible to calculate exactly what you will owe, but you can get good at estimating, over time.
Tip #2: Plan for your annual dues on a monthly basis.
You have annual fees that you pay. You need to determine how much that annual fee costs you monthly. Add the sum of the monthly calculation of all of your annual dues together to determine what it costs you per month to have all of the compare motor trade insurace business privileges you have. If you can be billed monthly on anything, it’s easier to manage your monthly cash flow if you switch. If you cannot, you need to know what an annual fee looks like monthly. For example, Scottsdale Association of Realtors bills annually, but it can be expressed monthly. Figure out that number.
Then, using your business checking account, set up an online transfer that happens monthly for the amount you need. In the case of a single annual expense of $440.00, you would need to transfer roughly $37.00 per month from your business checking account (account used for business purchases) into a plain jane, separate account designated solely for annual dues expenses. When the bill comes for the annual expense, you will no longer feel like you’re being raped by the system because you will already have grown accustomed to 1/12th of the amount every month being moved into a designated account just for this purpose…and nothing more. You cannot borrow from your own account to pay for other crap. This money is considered spent already.
Every year when I get an annual bill, the money is already there because I move it there in little chunks so it doesn’t seem so bad (that includes things like my annual accountant fee for doing taxes.) And, every quarter, when I estimate that nasty tax bill, I have the money to cover it and if I’m short, it’s not by very much.
Be smart as an agent and a self-employed person and put money that you earn away or they’ll come get it from you, and that will suck.