part time real estate agent tax - are they double taxed?

Question

so... both my wife and I have a W2 job. let's say our income is at around the 24% tax bracket. And then my real estate sales "part time"  let's say I made 50k in 2019. Does it mean the 50k commission income has to be taxed our ordinary income tax rate 24%, plus the self employed tax which is about another 15%? If so then that it would be about 40% tax that we have to pay? Sounds a bit too much and would like to get some clarification. thank you in advance.

Adam Rasmussen · Answer

Henry - definitely a fair question and there are a few variables here. Short answer is yes, you are definitely tracking with the percentage there. Having said that, with you being the 24% bracket you may have already maxed out (or close to) the Social Security wage base of $130k.

This means that if your W2 earnings are over $130k, you have already maxed out the social security wage base and will only need to pay the Medicare portion of the Self Employment income. Why is this a big deal? The Social Security tax makes up 12% of the 15% SE tax. If you have $130k of W2 earnings and $50k of commissions, then you only pay about 27% in tax (24% bracket + 3% Medicare tax) on the extra $50k.

Also, each taxpayer has their own social security wage base so it is dependent on how much you have in W2 income and who is claiming the commission income. Best to talk to a CPA to do some planning. Could look into filing your business as an SCorp but it may not make sense if the extra tax is only 3%.

Hope that makes sense.

Eamonn McElroy · Answer

@Henry Li

$50k appears to be your gross revenue.

If the activity rises to the level of a trade or business, ordinary and necessary expenses would be deductible.

It may be worth your time to start engaging a tax professional if you only see your income steadily increasing.

SE tax is 15.3% on the first 132,900 of earned income (which includes W-2 income) for 2019.  If household earned income is above $250k for a MFJ couple, the 0.9% medicare surtax kicks in on the excess.

Best of luck.

Carl Fischer · Answer

@Henry Li

You have it about right in your first post. I agree it does seem high- However, in the 1960s people were paying 90% in taxes. You need to fix the government, which is right up there with killing Superman, or use tax strategies and tax advantaged plans to build your wealth.

This is what I found after years of taxation. It’s not what you make but what you can keep. W2 income is like working twice as hard for half the money. investing with a Roth income is like working half as much for twice the money.

Daniel Dietz · Answer

@Henry Li, one thing to keep in mind is that you ALREADY are paying that 40%ish on you w-2 Income, you just are not 'feeling it'. What I mean is that about half of that "Self Employment Tax" is ALREADY being deducted from your W-2 check, and the other half your Employer is paying, instead of paying to you to then in turn pay in.

That is one of the 'evils' of being self employed..... you really feel it when you send in that 15% monthly, quarterly or yearly.

In my case, my SE tax is much larger than my Federal Income Tax due to being in a much lower tax bracket, so I do EVERY thing I can to reduce my 'taxable income' that I can. Max out my employer portions of SOLO401K, make sure I use ALL the right offs I can etc.....

Adam Rasmussen · Answer

The main thing to keep in mind regarding the $130k is that it is per taxpayer. Meaning you have a $130k Social Security wage base and your wife does, as well.

If you are at $100k and you are the one getting the $50k in commissions, this means $30k of the commissions will be subject to the full 15% Self-Employment tax but the remaining $20k will only be subject to the Medicare Tax of about 3%.

Of course the entire $50k is still subject to your ordinary rates no matter what tax bracket you are in.

Henry Li · Answer

@Adam Rasmussen Hi Adam, thanks a lot for your reply. However, we are at 24% bracket because we filed joined. My W2 income is about 100k. but with my wife's we are definitely over 130k. Does it mean we are still paying 27%? or the 50k commission income would be based solely on my income only? If so, i'll be paying 24% for the 100k W2 income, and 30k commission at 40%, and the 20k commission income over 130k cap at 27%?

part time real estate agent tax - are they double taxed?

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