How Real Estate Agents Can Plan and Set Aside the Right Amount for Taxes

Understanding Your Tax Obligation as a Real Estate Agent

As a real estate agent, you’re typically classified as self-employed, which means you’re responsible for both income tax and self-employment tax. Unlike traditional employees who have taxes withheld from each paycheck, independent agents must estimate and pay their taxes directly, often quarterly. Knowing how much to set aside ensures you’re prepared and avoids costly surprises come tax season.

Key Tax Components for Real Estate Agents

Your total tax liability consists of several federal and state taxes. The main components include:

Self-employment tax – This covers Social Security and Medicare and is set at 15.3% of your net income (income after allowable deductions) [1] .
Federal income tax – Rates range from 10% to 37%, depending on your taxable income bracket [1] .
State income tax – Varies by state; some states have no income tax, while others have graduated rates.

To estimate your total liability, you must add these components together.

How Much Should You Set Aside? Practical Guidelines

While the exact amount you need to set aside depends on your income, deductions, and state tax rules, experts generally recommend saving between 25% and 35% of your gross income for taxes. Here’s how this breaks down:

Self-employment tax: 15.3% of net income (after business expenses)
Federal income tax: 10% to 37% depending on your taxable income bracket
State income tax: 0% to 13% or more, depending on your state

Your effective tax rate will depend on your total income. For example, if you earn $60,000 in net commissions, you might pay 15.3% in self-employment tax ($9,180), plus federal income tax at your bracket (for $60,000, likely 12% or 22%), and any applicable state income tax. This could mean setting aside roughly $15,000 to $20,000, or about 25%-33% of your income for taxes. To calculate a more accurate estimate, use a reputable real estate agent tax calculator, such as the one provided by Empire Learning [2] .

Step-by-Step Instructions to Estimate and Set Aside Taxes

Determine your expected income: Tally up your anticipated commissions and any other business income for the year.
Estimate your business deductions: Subtract allowable expenses such as marketing, office supplies, vehicle mileage, and professional fees. Keep detailed records throughout the year.
Calculate net income: Subtract your deductions from your gross income to get your net profit.
Compute self-employment tax: Multiply your net income by 15.3% to cover Social Security and Medicare.
Estimate federal and state income taxes: Use your net income and the latest IRS tax brackets to estimate your federal tax. For state tax, check your state’s Department of Revenue website for current rates or use your previous year’s effective rate as a benchmark.
Add the totals and divide by four: This gives you your quarterly estimated tax payment. Setting aside this amount each quarter helps prevent underpayment penalties.
Open a separate savings account: Keep your tax set-asides separate from personal funds to avoid accidental spending.
Pay estimated taxes on time: The IRS requires self-employed individuals to pay estimated taxes quarterly. You can find due dates and payment options on the official IRS website; search for “IRS estimated tax payments.”

Real-World Example

Let’s say you’re a real estate agent in Texas (no state income tax), earning $100,000 in gross commissions. Your deductible expenses total $20,000, leaving you with $80,000 in net income.

Self-employment tax: 15.3% of $80,000 = $12,240
Federal income tax: For $80,000, you’d likely fall into the 22% bracket, but your effective rate may be lower after the standard deduction and credits. Estimate roughly $8,000-$11,000.
Total tax liability: $12,240 (self-employment) + ~$10,000 (federal) = $22,240 (about 28% of net income)

In this scenario, setting aside 30% would cover your liability and provide a cushion for unexpected changes.

How to Maximize Deductions and Reduce Tax Burden

You can legally reduce your taxable income by claiming all allowable business expenses. Common deductions for real estate agents include:

Marketing and advertising costs
Home office expenses
Vehicle expenses (mileage or actual costs)
Professional fees (licenses, dues, continuing education)
Office supplies and equipment
Client gifts (up to IRS limits)

Tracking these expenses throughout the year reduces your net income and, therefore, your overall tax liability. Consider consulting a tax professional who specializes in real estate to ensure you’re claiming everything you’re entitled to.

Quarterly Estimated Tax Payments: Avoiding Penalties

The IRS expects self-employed individuals to pay taxes as they earn income, usually through quarterly estimated payments. Missing these deadlines or underpaying can result in penalties and interest. To avoid this:

Estimate your total annual tax liability and divide by four for quarterly payments.
Set reminders for due dates: typically April 15, June 15, September 15, and January 15 of the following year.
Pay online via the IRS Direct Pay system or by mail (search “IRS Direct Pay” for the official portal).
If your income fluctuates, recalculate your estimate each quarter and adjust payments as needed.

Special Considerations: State Taxes and Capital Gains

State income taxes vary significantly. While states like Texas or Florida have no income tax, others like California or New York have high marginal rates. Check your state’s Department of Revenue or consult a local tax expert for specifics. If you sell real estate as investments, be aware of capital gains tax rates, which are generally lower for properties held over a year. For 2025, long-term capital gains tax rates are 0%, 15%, or 20%, depending on your taxable income and filing status [3] .

Common Challenges and Solutions

Many agents underestimate their tax burden, especially when they have a strong sales year. Others forget to adjust for changes in income or miss out on deductions. To avoid these pitfalls:

Update your income and deduction estimates regularly.
Maintain meticulous records of all expenses and income.
Work with a qualified tax professional at least once per year.

If you discover you’ve underpaid, pay the difference as soon as possible to minimize penalties. If you’ve overpaid, you’ll receive a refund after filing your return.

Alternatives and Proactive Strategies

Some real estate agents choose to form S corporations or LLCs for potential tax advantages. These structures can allow for different treatment of income and payroll taxes, but they also come with additional administrative requirements. Weigh these options carefully with a tax advisor. If your income is unpredictable, consider setting aside a higher percentage (up to 35%) until you establish a consistent income pattern.

Key Takeaways and Next Steps

Setting aside the right amount for taxes is essential for every self-employed real estate agent. Begin by estimating your net income, calculate self-employment and income taxes, and factor in your state’s requirements. Save 25%-35% of your income in a separate account, make quarterly payments, and maximize deductions to reduce your liability. For detailed, personalized advice, consult a tax professional who understands the real estate industry, and use reputable calculators like those from Empire Learning for ongoing planning [2] .