Making estimated tax payments is a process that can likely be avoided until a certain income level. For CRE brokers paid via 1099, there are many decisions to make when it comes to how to lower taxes and when to pay taxes. Our first preference is to keep it as simple as possible and for as long as possible.
When paid 1099, establishing an LLC and electing S-corp tax status, you will have two components of income, salary and net income from the business. Income taxes and payroll taxes will be caused by salary. Only income taxes will come from business net income.
Once you’ve determined your salary structure you will easily be able to calculate the income and payroll taxes associated with it. Net income from the business is a more variable situation. This is where most of your upside will be from a better-than-expected year. It is also where business expenses and retirement plan contributions will help lower net income, which also helps lower income taxes.
Two examples will show how estimated tax payments will and won’t be needed.
Tim is a CRE broker bringing in $250,000 this year. He is setup as an S-corp and his tax filing status is Married Filing Jointly. His salary is $100,000 and 401(k) contribution of $19,500.
After deductible expenses and 401(k) profit sharing of $25,000, his net income from the business will be $107,350.
Tim’s projected income taxes are $22,500 which is a small enough amount to handle through tax withholding from his salary, rather than making estimated tax payments.
Joe is a CRE broker bringing in $600,000 this year. He is also setup as an S-corp and his tax filing status is Married Filing Jointly. His salary is $200,000 and 401(k) contribution of $19,500.
After deductible expenses and 401(k) profit sharing of $38,500, his net income from the business will be $339,746.
Joe’s projected income taxes are $98,600 which is probably a large enough amount to not want to handle through tax withholding from his salary.
Our ongoing tax projection work for CRE brokers is not only to help set expectations but also to make tax planning and payments simpler. For many, estimated tax payments is a process that can be avoided.
Schedule a call with us to see if you can retire from making quarterly estimated tax payments.