Real estate agents: how to set aside tax from a commission check

Commission income is large, irregular and unwithheld, which makes it the hardest kind of income to handle well. Here is how an agent's money actually flows, what counts as income and expense, and how a closings pipeline turns next month's check into this month's plan.

ExactSplit · Updated July 26, 2026

Why agents get this wrong more than anyone

A software developer gets paid every two weeks by the same client for roughly the same amount. A real estate agent might go seven weeks without a deposit and then receive fourteen thousand dollars on a Tuesday. Both are self-employed, both owe estimated tax, and the second one is far more likely to have a bad April.

The reason is not carelessness. It is that every rule of thumb for setting aside tax assumes income that arrives steadily. Hold back thirty percent of each check works badly when the checks are lumpy, because the temptation to spend from a large deposit is real, and because the actual rate depends on how the year is going, which an agent cannot see from any one closing.

This post is about what a commission check is, what to do with it, and how a pipeline of pending closings changes the calculation. It is written for agents paid through a brokerage on a split, which is most of them.

What the check actually is

The gross commission on a sale is the sale price times the commission rate on your side of the deal. On a four hundred thousand dollar sale at two and a half percent, that is ten thousand dollars. It is also not your income, and the first mistake agents make is to think of it that way.

The brokerage takes its split first. On a seventy-thirty split the brokerage keeps three thousand and you are paid seven thousand. If the brokerage also deducts a transaction fee, an errors and omissions charge, or a franchise fee before paying you, those come off too, and what lands in your account is what is left. That deposit is your business income, at the net amount, on the day it posts.

This matters for the return as well as the estimate. The brokerage issues a 1099-NEC for what it paid you, not for the gross commission. If you report the gross and then deduct the split as an expense, you arrive at the same profit but a return that does not match the form, which is the kind of thing that invites a letter. Report the net. The split was never yours.

The consequence for set-aside is simple: the number to split is the deposit, not the sale price and not the gross. ExactSplit reads the deposit from the bank feed, so this is automatic, but if you are working it out by hand, start from what actually arrived.

The expenses that are yours

The expenses an agent can deduct are the ordinary and necessary ones for the trade, and for agents that is a longer list than most sole proprietors have. MLS and board dues. The state license and its renewal. Continuing education. Errors and omissions insurance, when you pay it rather than the brokerage. Lockbox and key services. Showing and scheduling software. Transaction management software. Signage, riders, and the sign installer. Staging. Photography, video and floor plans. Open house costs. Marketing: postcards, online ads, lead generation, the website. A desk fee if your brokerage charges one. Referral fees you pay out to other agents.

When you choose the real estate agent workflow in ExactSplit, the classifier already knows these merchants. A charge from your MLS, from Supra or SentriLock, from ShowingTime, from an E&O insurer, is classified as a business expense without you teaching it, and a deposit that references a brokerage, a title company or an escrow is recognised as income. Everything else still goes through the usual rule table and, where enabled, the model, judged against the trade.

Two things are not deductible and get claimed anyway. Your own clothing, however professional. And the brokerage split, for the reason above: it was never income, so it is not an expense either.

Referral fees paid to you are income. Referral fees you pay to another agent are an expense. Keep them separate; netting them is another way to end up with a return that does not match the forms.

Mileage is usually the biggest one

For most agents the largest single deduction is not on that list. It is driving. Showings, listing appointments, inspections, closings, previews, and the trips to the office in between add up to more miles than almost any other trade, and at the 2026 rates, 72.5 cents through June and 76 cents from July, twelve thousand business miles is worth around nine thousand dollars off your profit.

The catch is substantiation. Section 274(d) requires the date, the mileage, the destination and the business purpose for every trip, and it treats them as a set. A trip missing any one is not a smaller deduction, it is no deduction. Agents lose more to this than to any other rule, because the driving is constant and the log is an afterthought.

The mileage section in ExactSplit refuses to store a trip without all four fields, for exactly this reason, and rates each trip by its own date so the mid-year rate change is handled. Log the showing the day you do it. It takes fifteen seconds and it is the difference between the deduction existing and not.

The pipeline: knowing before the money lands

Here is where the agent workflow is different from the generic one, and where the bad April usually comes from.

A projection built only from the bank feed knows what has landed. It does not know that you have three closings scheduled for next month. So in a slow spring the projected annual income looks low, the derived set-aside rate looks low, and the quarterly figure looks manageable. Then the closings land in June, the projection jumps, and the June payment is suddenly much larger than the March one implied. That is not the software being wrong. It is the software not knowing what you knew.

The pipeline fixes this. Each pending closing goes in with the sale price, your side's rate, your split, any brokerage fees, the expected close date, and your honest estimate of the odds it closes. From those the app computes the net commission that will actually reach you and weights it by the probability, because deals fall through and a forecast that assumes every contract closes is a forecast that is wrong.

The weighted total for the year is added to what has already landed to produce the income projection. That projection drives the set-aside rate and the quarterly figures. So the moment you add a closing, the rate moves, and the next deposit, whatever it is, is split at a rate that already accounts for the money that is coming.

When the closing happens and the commission posts, you mark it closed. It drops out of the forecast on the same day the deposit enters the feed, so it is never counted twice. If it falls through, you mark it lost and the projection comes back down. A closing that slips past its date is not dropped; it is simply expected in the current quarter instead, because slipping is what closings do.

What a closing does to the quarterly number

Take an agent who has earned forty thousand dollars net through August and has two pending closings, expected to net seven thousand and ten thousand five hundred, at seventy and fifty percent odds. The weighted pipeline is ten thousand one hundred and fifty. The projection becomes fifty thousand one hundred and fifty rather than the forty thousand the feed alone would show, and the app shows separately how much tax those closings would add if they land: at this agent's marginal rates, roughly three thousand dollars, or about thirty percent of each closing dollar.

That thirty percent is the number to hold back from each of those checks when they arrive, and the app will say so per deposit. The point is that the agent knows it in August, when the plan can still change, rather than discovering it in the September payment.

The pipeline also gives the accountant something they never usually have: a view of expected income for the rest of the year, with the assumptions written down. An accountant can look at the pipeline, see that the Q4 figure depends on a closing at fifty percent odds, and advise accordingly.

Setting it up

In settings, choose the real estate agent profession pack. That fills in the trade description the classifier uses, unless you have written your own, and turns on the pipeline section. Under accounts, mark the checking account your brokerage pays into as business or mixed. Pick a reserve account and switch set-aside on, because for lumpy income the per-deposit split is the whole game. Then add the closings you have under contract.

From there it runs itself. Each deposit is split at a rate that knows about the pipeline. Each closing you mark closed drops out. Each showing you log adds to the deduction. And when your accountant asks in January what happened this year, the export already has the answer, with the commissions at net, the expenses classified, and the mileage log complete.