As 1099 paid independent contractors, taxes are not withheld from your commissions. It is your responsibility to understand your tax liability and set aside a portion of your income to make these payments. Too many commercial real estate brokers are behind and are reactive to income taxes. This is not their fault as most rely on an accountant for information about their tax situation.
The problem is most accountants are only scorekeepers looking at last year’s numbers. They are also in a high-volume business where it is always on to the next tax return, and there is little time left over for a proactive conversation about tax strategy. You do not need to fly blind throughout the year regarding taxes.
No one likes the amount of taxes they have to pay. It is even worse when the taxes come as a surprise in April. Having proper expectations will improve your cash flow management and your level of stress.
Living in an eat what you kill environment is already stressful. Not being aware of your potential tax situation and playing catch-up adds more stress. The more stress you have, the less effective and successful you will be at your business and making more money.
We help CRE brokers have proper expectations for income taxes and better cash flow management. At the start of the year, we reach out to develop a Tax and Cash Flow Plan. This gives brokers an early look at their tax liability and important due dates for cash flow events.
We ask two questions to develop the plan. First, what is your brokerage income goal this year? And of that income, how much can you set aside for retirement and investment account savings?
We create a tax projection at the beginning of the year with those assumptions. Then, the projected tax liability is converted into a percentage of expected income to help you understand approximately how much of each commission to set aside for taxes.
Asking the question about retirement savings is important for establishing a savings goal. As an independent contractor, you do not have access to an employer 401(k) with automatic payroll deductions. Therefore, the responsibility to save for your future is entirely your responsibility. In addition, setting a goal makes you more likely to be accountable.
Having proper expectations will help you manage cash flow better in a world where your cash flow is already erratic. So stop being reactive to your tax situation and reach out to us today for a complimentary first draft of a Tax and Cash Flow Plan.
