Can someone help me With windfall profit tax?

Question

I am a licensed realestate agent in florida and i am about to close on a big commercial deal. I stand to make between 10 and 30 thousand dollars in comission. My husband says that if i am not incorporated the irs will take 57% of my commision for windfall profit tax. Is this true and what can i do to prevent it? Any info would be much appreciated as this is my first deal and i have made plans to reinvest this money in another property

Answer 1

hmmm
I am not sure about the IRS taking 57% of your profit.....
I am also not sure of your situation. It sounds like you maybe invested some money and in some property and then turned around and sold the property? If so any gain (selling price - purchase price + any expenses) would be taxed as a capital gain. If the property was kept over one year the rate would be 5-15% depending on your marginal tax bracket. If not kept over a year then it would be taxed at your tax bracket percentage.

But maybe this is just straight commision from selling the property? If this is the case then the commision is going to be gross income that will be reported on schedule c. It would be subject to 15.3% self employment tax as well as your regular tax rate. But you would be able to deduct any expenses that you incurred while selling (such as advertisement, realtor license expense, cell phone, etc)

hope this helps a bit

Answer 2

first of all $30k is not a windfall, and even if it were the most the irs can charge on income is 35%, and that bracket start at $150k i believe. Social security will add about 13%. So the IRS cannot get anywhere near 57%

If that is you only income for the year you won't pay a lot of taxes, depending on how much your husband makes.

Also incorporating would have no effect, as if you want to spend that money you'd have take it out as income one way or another and then it would be taxed.

All incorporating will do is cost you money for filing fees, more complicated accounting for the corp and your personal return so more accountant fees.

If you get to the point where you want to invest more than the IRA max contribution limit than incorporating will allow you to set up a profit sharing program as well as a money purchase plan, allowing contribution of 25% of your income. On $30k that would be $7500 and not worth the hassle or expense.

Just keep receipts for all your business expenses and deduct it on your schedule c. All office supplies, computer, Internet, phone bills, gas, and car expenses that relates to your real estate business thus reducing the taxable amount of the $30k.

Good luck with the deal and hopefully you'll be close to the $30 and not the 10k

Answer 3

Your husband doesn't know what he's talking about, there is no such tax on commissions.

Since you're a licensed real estate agent and work on commissions, I assume you receive a 1099 from your employer instead of w-2. If this is the case, you should be filing a schedule C, and you can offset any of those gains (such as car usage, supplies, business lunches, etc). Any profit left over you will owe self employment taxes on top of your federal income tax.

Since FL doesn't have a income tax, no need to worry about that.

See more info about schedule C and self employment taxes below.

Answer 4

Don't take tax advice from your husband. First, 10-30K is hardly as windfall. Second, the windfall tax is a tax that congress slaps on specific industries (i.e. oil) to score political points.

Your tax liability will be no different that if you had 10-30 deals for $1,000 each.

Answer 5

I only found this reference to 'windfall profit' on the IRS site. It looks to me as if it no longer exists.

SOI Tax Stats - Excise Tax Statistics
... both instituted and allowed to expire or were repealed. During the course of their enactment, windfall profit, environmental, and luxury taxes generated over $90 billion in revenue. Related Statistical Table ...
http://www.irs.gov/taxstats/bustaxstats/article/0,,id=97148,00.html - 15.5KB

Answer 6

I have no idea what he's talking about, sounds like he's blowing smoke. It's too late to do anything about it by incorporating, and incorporating wouldn't help that much anyway. You will, however, have to pay state and federal income taxes on this money.