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  • Writer's pictureThe Gadfly

As a real estate agent, navigating the world of taxes can be as complex as a maze. But here's a straightforward tip that could save you both money and headaches: Avoid charging yourself a commission when selling your own property. Let's break down why this is a smart move in simple terms.



AVOIDING THE SELF-EMPLOYMENT TAX TRAP


Imagine paying extra taxes on money that's just moving from one pocket to another. That's essentially what happens when you charge yourself a commission. As a self-employed individual, you're subject to self-employment taxes on your income. By avoiding this self-imposed commission, you dodge unnecessary tax on money that was already yours.



KEEPING YOUR TAX BRACKET IN CHECK


Charging yourself a commission might bump you up to a higher tax bracket, increasing the rate at which your overall income is taxed. Think of it as giving yourself a dollar, only to have a larger chunk of it taken away in taxes. It's counterproductive, right?



CAPITAL GAINS VS. COMMISSION: CHOOSE WISELY


Selling your property usually brings capital gains into play, often taxed more favorably than regular income. But here's the catch: charging a commission lowers your property's cost basis, potentially hiking up your capital gains tax. It's like stepping over dollars to pick up pennies.



SIMPLICITY IS KEY


Why complicate life with extra paperwork and accounting gymnastics? Not charging yourself a commission keeps things straightforward, letting you focus on what you do best – selling properties!



MAINTAINING MARKET CREDIBILITY


In the real estate world, charging yourself a commission is like wearing socks with sandals – it's just not done. Stick to the norm to maintain your professional image.


 

In conclusion, while the idea of charging yourself a commission might seem like a smart financial move, it's actually a tax inefficiency in disguise. Keep it simple, save on taxes, and maintain your professional standing by steering clear of this practice. And remember, when in doubt, consult a tax professional to navigate the complex waters of real estate taxation.


Happy selling, and smarter saving!


Brought to you by Gadfly, your trusted partner in accounting and advisory services in Old Town Manassas, VA. At Gadfly, we're committed to providing you with insightful financial advice and tips to help you navigate the complexities of real estate and taxes with ease. Remember, for personalized advice and comprehensive financial solutions, Gadfly is here to assist. Contact us today to learn how we can support your financial journey.

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