Wolfe Consulting understands agents, especially real estate agents.
On top of being a full-time CPA, Justin Wolfe, has been an Oregon real estate agent since 2014 as a seasonal business so he realizes the business peaks and valleys of sales during the year.
Justin Wolfe can share with you some of his own crazy stories of selling homes, but more importantly, he can help set up any agent for success in saving taxes on business income.
He works with dozens of real estate professionals already including Commercial Real Estate, Investors, and Residential Real Estate agents.
The real estate agent business is susceptible to rapid increases and decreases in business unless you are a very experienced agent with a long pipeline of potential clients to continue building on transactions. A business with lots of peaks and valleys in income needs some working capital to keep it sustainable through the valleys.
What do I mean by working capital? The cash that is currently in your business checking account and savings account is the working capital available to pay for your current financial needs. Without working capital, all businesses fail.
Businesses can increase their working capital with either making more sales and keeping a larger amount of cash or borrow from a bank to increase their cash with a line of credit.
Not that debt is what we want to be building in our businesses, but for survival of a business it is a good way to not go below the cash comfort zone for paying bills and most importantly yourself. Debt can spread out the amount of time to payoff large expenses or large purchases.
Like any business, how a business is set up is one of the major steps in saving money on taxes. Does your business file its own tax return? If it does, chances are you have a corporation or a partnership tax return that you have set up with either yourself or multiple people in the corporation or partnership.
For small businesses, that do not have their own tax return to file, the business income will face the highest possible taxes because the income is subject to more than just income taxes.
The business is also subject to the Self Employment Tax of 15.3%. This tax is really the employer side of Social Security and Medicare (7.65%) and the employee side of Social Security and Medicare (7.65%) added together, but it can be very expensive if a business owner hasn’t planned for this tax when they file their Form 1040.
Business owners can save thousands in taxes by switching from a sole proprietor business model to a S Corporation or even a C Corporation for the right ownership structure you want to achieve. For example, if you made $50,000 or more in your business income before taxes then you pay a $30,000 Form W-2 salary to yourself; you pay only $4,590 in the Social Security and Medicare taxes compared to having $50,000 of business income and paying $7,650 in Social Security and Medicare taxes. There are other employment taxes that can be saved with the right set up.
See the Choice of Entity page for my details on what type of business you should set up for financial and legal strategies.