Understand how your commission arrives
Your brokerage usually receives the commission and pays you after taking its split, desk fees, transaction fees and possibly errors and omissions charges. Read the commission disbursement statement for each closing. Record the gross commission as income and the brokerage deductions as expenses, rather than recording only the net deposit. That way your books match what the brokerage reports to you on its year-end form.
Accounts that fit the business
Useful expense accounts include franchise or brokerage fees, MLS and association dues, lockbox and sign costs, professional photography, staging, advertising and lead generation, client gifts, education, license renewals and vehicle expenses. Keep client gifts and meals in their own accounts since tax limits can apply to them. A CPA can confirm what is deductible for your situation.
Referral fees and team splits
If you pay a referral fee to another agent or split a commission with a teammate, record it as a separate expense and track the recipient's tax information. Referral fees paid to a person outside your brokerage may require a 1099, so collect a W-9 before the payment. Do the same for assistants you pay as contractors.
Money you do not own
Earnest money normally goes into the brokerage's escrow account, not yours. If you ever handle client funds directly, stop and ask your broker, because state licensing rules are strict. Keep your own books free of client money. Also separate personal real estate you own and rent from your agent business. Those are different activities that belong in different sets of books.
Taxes and cash planning
Because no one withholds tax from your commission checks, set aside a portion of each one into a separate savings account the day it arrives. Make estimated tax payments on the schedule the IRS and your state publish. Self-employment tax applies on top of income tax for most independent agents.
Because closings are uneven, build a cushion equal to a few months of expenses. Track pending deals in a simple list, not in your accounting file, and only record income when the commission is actually paid or the closing is complete according to your accounting method.
Build a simple year-end file
At the end of each year, gather the brokerage's year-end statement, your closing disbursement summaries, mileage totals, receipts for marketing and education, and proof of dues and license payments. Match the brokerage's reported income against your own record of commission checks. A difference usually means a fee was netted out of a check and never recorded.
If you work with a team or have a transaction coordinator, write down who pays whom and when. Handshake arrangements are a leading reason agents get confused about what they earned and what they owe. A short written agreement, even a one-page one, saves a lot of trouble.
Some agents also earn from teaching, coaching, rentals or a side business. Give each stream its own income account, and keep expenses that belong to only one stream out of the others. Your tax return will treat them differently, and so should your books.
Common questions
Can I deduct my car as a real estate agent?
Often yes, using actual costs or the standard mileage method, if you keep a contemporaneous mileage log. Driving from home to the office is generally not deductible, so ask your CPA about your setup.
Should I form an LLC?
That is a legal and tax question for an attorney and CPA. Whatever you choose, keep a separate business account.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.