Bookkeeping for Real Estate Agents: Splits, Fees and 1099s

How do real estate agents do bookkeeping, and are they self-employed?

A licensed real estate agent paid on commission is generally self-employed for federal income and employment tax, so the books work like a sole proprietor's: commissions in, costs out, and a year-end tie to each payer's Form 1099-NEC. The IRS treats a licensed agent as self-employed for all federal tax purposes when substantially all pay is directly related to sales or other output rather than hours worked, and a written contract says the agent will not be treated as an employee for federal tax purposes (26 U.S.C. 3508).

If either condition is missing, the common-law test decides: a person performing services is generally an employee when the payer has the right to control what is done and how. Section 3508 applies for purposes of the Internal Revenue Code only, so state unemployment insurance and workers' compensation rules can reach a different answer. A Form W-2 from the brokerage means it is treating you as an employee for that pay; the Schedule C and 1099-NEC steps below do not apply to those wages.

A self-employed agent generally has no tax withheld from commissions, owes self-employment tax, and generally makes estimated tax payments instead. A payer must file Form 1099-NEC when it pays an agent $2,000 or more in the year ($600 for payments made through 2025); the form covers fees and commissions for services performed as a nonemployee. The agent reports the business on Schedule C.

The books have three jobs: record every commission as income, record each cost by type with proof, and tie the totals to each payer's 1099-NEC.

The case stops being simple when:

• Commissions come from more than one brokerage, you changed brokerages mid-year, or a closing in one year pays in the next.
• The 1099-NEC does not match the deposits.
• There is no written contract with the brokerage, or part of the pay depends on hours.
• Commissions are paid to a corporation instead of to you.
• It is a first full year with large income and no estimated payments.
• You pay an assistant or a referral partner, work on a team, or are weighing an S corporation election.

Gather before you start:

• The brokerage agreement and a commission statement (often called a commission disbursement authorization, or CDA) for every closing paid in the year.
• Every Form 1099-NEC, and any other 1099.
• Bank and card statements.
• Invoices for license, dues, insurance, listing-service, technology and marketing costs.
• A mileage log and a list of gifts.

How do I record a commission check and the brokerage split?

Record the commission that belongs to you under your agreement, before your own fees come out of it, and make the books explain any gap with the 1099-NEC. A 1099-NEC may show the commission before the brokerage's share, only what the agent was paid, or something in between. Compare the form with each statement; do not assume. A payer reports the amount includible in your gross income, often the amount before fees you owe others, so a form net of your own fees may be short.

The Schedule C instructions say to make sure line 1 includes the amounts properly shown on Forms 1099-NEC, and to attach a statement explaining the difference if the 1099-NEC total is more than the gross receipts reported. For a form that shows more than you kept, see reporting a 1099 that shows the full amount. Keep one income line per closing, labeled with the property or file number, so each line traces to a statement.

What can a real estate agent deduct, and where does each cost go on Schedule C?

Set up one account per cost type below. Each feeds one Schedule C line or Part V, so the year-end totals come straight from the books. Costs the brokerage takes out at closing go to the account for their type, not into one lump.

Line 10 is the expense line for commissions and fees; the commission an agent earns is gross receipts on line 1. A cost with no line of its own goes in Part V, listed by type and amount. Where a cost fits two lines, pick one and use it every year. State license fees vary by state.

Two cost types draw questions:

• Dues. Dues to an organization such as a trade association are deductible if they otherwise meet the section 162 rules, subject to limits such as lobbying. Dues to business, social, athletic, luncheon, sporting, airline and hotel clubs usually cannot be deducted, and a club's purposes and activities, not its name, decide (Publication 463).
• Education. Training that maintains or improves skills needed in your present work may qualify. Education needed to meet the minimum requirements of the trade, or that is part of a program qualifying you for a new trade, does not, and a course taken to earn a first license may fall there.

For which meals count, see business meals deduction. For which Schedule C costs draw IRS questions, see Schedule C expenses the IRS questions.

How are closing gifts and client gifts treated?

A business gift is deductible up to $25 per person per year, however much it cost (Publication 463).

• The limit counts gifts given directly or indirectly; a gift to a client's family is generally treated as an indirect gift to the client.
• An item costing $4 or less, with your name clearly and permanently imprinted and one of many identical items you widely distribute, is not treated as a gift for the limit, so it can go to marketing. A branded item that costs more is a gift, except a sign, display rack or other promotional material used on the recipient's business premises (26 U.S.C. 274(b)).
• An item that could be a gift or entertainment is generally treated as entertainment, which is generally not deductible. Tickets you give away without attending with the recipient are deemed a gift unless you treat them as entertainment (26 CFR 1.274-2); tickets you use together are entertainment. Packaged food or drink meant for later use counts as a gift.

Record each gift's cost, date, description, business purpose and the recipient's business relationship to you (26 U.S.C. 274(d)). A general listing of recipients is enough if it shows you are not avoiding the limit (Publication 463). The limit covers only items the recipient can exclude from income as a gift (26 U.S.C. 274(b)). A payment in return for a referral is compensation for services, not a gift; the 1099-NEC instructions list referral fees paid by one professional to another as reportable. Whether a thank-you to a past client is a gift or a referral payment depends on the facts. Booking a payment correctly does not make it allowed: state real estate licensing rules, and 12 U.S.C. 2607 for a transaction with a federally related mortgage loan, can limit who may be paid for a referral. Ask your broker or state real estate commission before paying anyone for one.

What proves mileage, a home office and marketing spend?

Mileage, a home office and marketing spend each need their own record, kept at or near the time of the cost.

Not every drive counts. Home to a regular office away from home is a nondeductible commute. With a home office that is your principal place of business, drives from home to another work location in the same business are deductible. With a regular office elsewhere instead, home to a showing or closing is deductible when the stop is a temporary work location in the same business, one you expect to use for a year or less; a place you work regularly is not. Drives between stops are deductible either way. With neither office, the first and last trips of the day between home and a stop in your metropolitan area are commuting (Publication 463). Log each trip's start and end so your preparer can sort them. For the standard rate or actual costs, see standard mileage or actual car expenses.

A home office can qualify as the principal place of business based on the importance of the work and the time spent at each place you work. It also qualifies when you use it regularly and exclusively for administrative or management work and have no other fixed location where you do substantial work of that kind (Publication 587). Substantial paperwork done at a desk in the brokerage office can defeat that route; meeting or serving clients away from home does not. The client-meeting route is separate, and occasional meetings and phone calls do not qualify. See the home office deduction.

A closing in December pays in January: which year is the commission income?

An agent on the cash method reports a commission in the year it is actually or constructively received, usually the payment date, not the closing date. Income is constructively received when it is credited to the agent's account or made available without restriction, so a commission made available without restriction in December is generally December income, whatever day the agent deposits it. Whether money held in escrow or by the brokerage was available depends on the agreement.

The brokerage's 1099-NEC covers payments made during the year, so it follows the payment date too. Record each commission on the day it is paid, and keep a list of closed deals not yet paid, outside the income account, so the pending money is visible without counting it early. An agent on an accrual method times income differently; see cash or accrual for a small business.

How much should I set aside, and when is estimated tax due?

Set aside enough for income tax plus self-employment tax on the year's profit, not on deposits. Estimated tax pays both together, and a sole proprietor generally has to make it when the return is expected to show $1,000 or more due (IRS). The IRS says the estimate starts from expected income, taxes, deductions and credits, so a commission deposit is not the starting figure until the year's costs come out.

Self-employment tax is 15.3%, figured on 92.35% of Schedule C profit on Schedule SE, and the social security part stops at a yearly earnings limit. A further 0.9% Additional Medicare Tax applies when wages and self-employment income together, with a spouse's on a joint return, exceed the threshold for your filing status, so a large first year can owe it (IRS).

Many agents move a share of each commission into a separate account and compare it each quarter with the books' year-to-date profit; that is a bookkeeping habit, not an IRS rule. Late or short payments can bring a penalty, which a safe harbor based on this year's or last year's tax can avoid. For due dates and safe harbors, see quarterly estimated tax payments.

How do I tie my books to the 1099-NEC before filing, and what do I send my preparer?

Total the commission income in the books by payer and compare each total with that payer's 1099-NEC, which is due to you by February 1, 2027 for this year's payments (IRS). Explain every gap in writing. The IRS also says to reconcile the business account each month, so the tie-out in January is a check, not a rebuild. Run commissions and costs through one business account so every deposit traces to a statement; see a business bank account.

A gap usually comes from one of these:

• The 1099-NEC includes the brokerage's share or your own fees, or leaves them out, and the books treated them the other way.
• A payment fell in a different year than the closing.
• A payer paid you but sent no form. Income is reportable from all sources either way.
• The brokerage withheld 24% because it lacked a correct taxpayer ID for you. The form shows the tax withheld and your return reports it (IRS). Record the commission in full and the withholding as tax paid, not as a business expense.
• The payer made an error. Ask for a corrected form.

Send your preparer everything on the gather list in the first section, plus a one-page tie-out: payer, 1099-NEC amount, income in the books, brokerage fees, difference and reason. Add expense totals by account, the mileage summary, the gift list and the estimated payments made. Publication 583 says to keep supporting documents organized by year and type. For how books become the return, see books to the business tax return.

When do an assistant, a referral partner or a team change the books and the 1099s I issue?

Each person you pay is another payee to track, and the relationship decides whether the payment is payroll or a 1099-NEC.

If a worker you pay as a contractor is really an employee, you owe the payroll taxes as the employer, personally if you are a sole proprietor (26 U.S.C. 3403 covers the income tax that should have been withheld). If part of your commission is paid onward to a team member or partner, the payment may be yours to report. See which contractors get a tax form and, for a worker who may be an employee, contractors who may be employees.

Example

These examples are illustrative; the amounts are in US dollars.

New agent: a 1099-NEC above the deposits

A new agent closes 6 deals. The brokerage deposits $72,000 and kept $6,000 of split and fees. The statements show the full $78,000 commission credited to the agent, and the 1099-NEC shows $78,000. The books record $78,000 of commission income and $6,000 of brokerage fees. Income ties to the form, the fees tie to the statements, and $78,000 less $6,000 equals the $72,000 deposited.

Fees, marketing and gifts

An agent's books show $150,000 of commission income (any brokerage share is booked as in the first example) and the agent pays $9,000 of listing-service, insurance and license fees, $14,000 of marketing and $400 of closing gifts to 16 clients at $25 each, none of whom received another gift that year. Each cost goes to its own account, and no client's gifts exceed the limit. Before other costs, profit is $126,600, and estimated tax is set aside from that figure, not from $150,000. Had one gift cost $40, only $25 of it would count.

A December closing paid in January

An agent on the cash method closes a $10,000 commission on December 28, and the brokerage pays it on January 6; the money was not made available earlier. In the closing year, the books and return show none of it, and the pending-closings list shows $10,000 due. In the following year, the books record it on January 6, and that year's 1099-NEC includes it.

Different for you?

• You are paid through an S corporation or another corporation, or you are weighing an election: payments to a corporation are generally not reported on a 1099-NEC, and the books add payroll or owner-pay accounts. An eligible corporation or LLC elects on Form 2553, signed by all shareholders, within 2 months and 15 days after the start of the tax year it is to take effect; a sole proprietorship cannot elect. See S corporation election and salary and S corporation bookkeeping, then get bookkeeping help to settle how the books should be set up.
• Your 1099-NEC does not match your deposits and the split does not explain it, or you have commissions from more than one brokerage or year, or changed brokerages mid-year: reconcile payer by payer, and get bookkeeping help if a gap remains.
• Your books are behind, or this is a big year with no estimated payments: see catching up on overdue books and quarterly estimated tax payments, and get bookkeeping help.
• You pay an assistant, a referral partner or team members: see which contractors get a tax form, and get bookkeeping help if payments go to several people or you cannot tell what each form should show.
• You are choosing between software and a bookkeeper: see doing your own books or hiring a bookkeeper, or get bookkeeping help if you would rather not keep the books yourself.
• You own rental property personally: see rental property taxes.