Continuing on in the blog post series where I analyze some of the intersting search terms used to find my website, I came across the term "IRS Independent Contractor Real Estate." I am just about to complete another series of posts on the difference between an employee and independent contract and the factors the IRS will look at to determine whether a worker is actually an independent contractor or employee.
One group of "workers" that seem to get into a lot of trouble with the IRS with regards to paying their taxes on time are real estate agents. Real estate agents are almost always independent contractors of the agency they work for and are 1099 employees so the agency does not withhold any federal or state income taxes. They are not only liable for their income tax but also the self-employment tax. Since many people are not used to being 1099′ed when they get into the real estate business they spend every penny they receive in the checks they receive at closing, and at the end of the year there is no money left over for taxes.
The first thing I would definitely recommend is to begin setting aside money from each closing for taxes. Put this money is a separate "tax savings account" at your bank. Since you are self-employed you will be required by the IRS to make estimated tax payments. Having this money sitting aside will allow you to make all of your estimated tax payments on time and keep you current and in compliance with the IRS. This is extremely important because if you are behind in your taxes and wish to seek an offer in compromise, you will have to have your estimated tax payments for the present year current. If not, the IRS will summarily reject your offer in compromise.
Once you get this year taken care of we can begin to look into options to take care of those past due taxes. The two main options in dealing with an IRS tax liability are an offer in compromise or an installment agreement where you make monthly payments to the IRS. There are many other posts on this blog regarding filing an offer in compromise and about installment agreements. To learn more, browse through the site or call me to set up an appointment.
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