Just curious as I've begun a new chapter in life (Realtor working independently). How much do you put aside for tax? I've assumed 40%, but I'm not entirely sure how it works. I know there are ton of write-offs and other factors, but what as a rule of thumb?

I'll most likely have an accountant handle it, but I figured this could turn into an interesting discussion about strategy and different ideas.

Go buy a copy of TurboTax.  Enter your income that you expect to make this year.  Enter your deductions from last year.  Divide the results by 4.  Pay that amount in April, July, October, and January.

Edit; I think TurboTax will print out the quarterly forms for you.

This is my first year and I'll still have income from my current job. I was just trying to get an idea of what percentage people put aside.

I would guess that 40% is more than adequate. The TurboTax suggestion is the route I took. I entered my estimated income, estimated deductions, IRA/401K contributions, and let it figure out what my expected taxes would be. Simplistically, it took my tax bracket (18%) and added the SS/FICA tax (15%) and came up with approx 33% to set aside. Turbotax also will print out your quarterly 1040-ES vouchers to make filing easier. I always added a few extra percent to make sure I was paying enough as there are some hefty penalties if you underpay your estimated taxes. But, since you are probably going to use a CPA, until you hear from him, 40% is probably a good number to use at this point.

Great, thank you. I appreciate that. Considering I'm in real estate and I'm independent I will have tons of business expenses (mileage, cell phone, home office, computer......) I keep a ledger of miles driven and hours worked. I'm sure the rest will be figured out, but I like to educate myself and minimize guess work. Plus, its fun starting discussions on here.

Guess how much you'll make this year is the first step. Then do a simplified version of your taxes. You need to know your bracket to make a real guess.

Does that include income from my primary job that I file jointly? Or will it be viewed separately because being an realtor is its own "business"?

Very few people pay 40% in taxes. There are higher tax brackets that are close to that but with deductions etc you end up paying considerably less.

I have been self employed for many years. Your first year you will just have to pay a big tax bill at tax time. Following years you will have to do quarterly estimates.

The simplest way to handle it your first year I think is to have a separate bank account for your business stuff. Every expense for the business comes out of there and all the income goes into there. When ever you take money out of that account for yourself uses 75% of it and stick 25% into a savings account for taxes. Unless you are making well into the 6 figures 25% should cover you once you figure deductions.

Just as an example I was looking back on some old tax returns. In a year where I made 146k my total taxes due were $20,352.

A separate checking account for your business is essential.


















 

Really appreciate the information guys.

I have a separate checking account, but as it stands I've only had expenses (license, accesses, mileage, and the like). So, I've been paying for that stuff with my amex or by check. Seriously there is minimal money in the "business" account, but my first commission checks will be deposited directly to it.

Wife and I are both self-employed business owners and our accountant has us set aside 30% of any income we make that he doesn't already have figured into our quarterly estimated taxes. You should have those next year, but for this year, I'd say 30% is a good starting point. I don't know how much money you will make or what tax bracket you are currently in but I doubt you will pay much more than 30% after deductions etc.



Best advice, get an accountant and talk to him and see what he says. If it cost you some money for consulting, it's well worth it in the long run. Good luck!

Thank you. Yeah, I have an accountant now and he handles our income including one rental.