- Although most of your records are probably online, keep track of any remaining paper documents in one place for easy access.
- Dedicate at least five minutes every week to reviewing your account statements and expenses.
- Set aside a portion of your commission for taxes -- 40 percent is a good ballpark.
At this point, April 17 may not even be a glimmer in your eye. However, you can still start thinking about your taxes, as it’s never too early to get your finances in order.
Taxes for self-employed folks can be a real headache, which is why it’s smart to understand your unique tax situation and prepare for what to expect on Tax Day today.
1. Keep all of your paper records in a single place
These days, most of your business records are likely electronic. However, you may still have some paper statements lying around, such as your spouse’s W-2, mortgage interest forms and the 1099 from your real estate brokerage.
These records should be kept in a single easy-to-access place for quick reference. That way, when it’s time to pay taxes, you don’t have to go searching every drawer in the house for all of your miscellaneous documents.
2. Take five minutes every week to review expenses
To stay on top of your finances, dedicate at least five minutes every week to reviewing your account statements and expenses.
Keeping a dedicated business account will simplify things tremendously; use one card exclusively for business-related purchases. Committing to these regular, weekly check-ins will help you avoid spending precious hours digging through months-old account statements.
There are also plenty of apps out there for agents these days to manage their finances straight from their smartphone.
3. Know how much of each commission you can afford to spend versus how much you need to set aside for taxes
It’s easy to forget that some of your commission needs to be set aside for taxes. That’s why it’s crucial to sit down and figure out how much of each paycheck is yours to spend — and how much you need to stow away for Tax Day.
Set up a calendar with digital reminders for when your quarterly tax payments are due. Try to be conservative in your estimate, so you don’t owe additional taxes at the end of the year. (However, don’t be too conservative, as you don’t want to forfeit any unnecessary income.)
Forty percent is generally a good amount, as that should cover your federal income tax, self-employment taxes and state taxes.
Additionally, some business finance apps available can provide you with a real-time estimate of total tax obligation without having to whip out a calculator or tax table.
If you or your spouse has additional W-2 income, you can also choose to add withholding on your W-4, which will offset some of the “out-of-pocket” tax payments you owe as an independent income earner.
The IRS has a handy calculator that will help you determine your withholding amount. To perform the calculation, enter in the total W-2 earnings, plus your projected net real estate earnings. This will help you to determine what you need to set aside for federal taxes.
By doing these three basic things, you can rest easy knowing you’re fully prepared for when tax time rolls around.
Aaron Lesher, CPA, is part of the Customer Success and Growth teamat Hurdlr in Washington, D.C. Aaron also helped create a free tax resource for self-employed entrepreneurs called 99Deductions. Follow Aaron on Twitter or connect with him on LinkedIn.