Introduction
If you're earning commission-based income—whether from sales, real estate, freelance gigs, or other performance-based roles—tax season can feel a little more complicated than just receiving a salary. But don’t worry, we’ve got some easy tips to help you navigate the process and get your tax filing right!
1. Understand What Commission-Based Income Is
Commission-based income is any income you earn by completing a sale, hitting a target, or meeting other performance goals. This type of income is typically variable, so it might change from month to month depending on how well you perform. For tax purposes, commission income is treated as self-employment income and is subject to income and self-employment taxes.
2. Keep Detailed Records of Your Earnings
Since commission-based income can fluctuate, keeping detailed records of your earnings is essential. Track each sale, deal, or commission you earn, and be sure to record any relevant dates, amounts, and parties involved. Using Life Planner’s Expense Tracker and Financial Reports tools makes it easier to track this income and any related expenses, ensuring that your tax records are accurate and comprehensive.
3. Don’t Forget About Self-Employment Taxes
As a commission-based worker, you are considered self-employed, meaning you’re responsible for paying both the employee and employer portions of Social Security and Medicare taxes. These taxes are generally 15.3% on your net income. This is why it's so important to track all your commission income—so you know what your total earnings are and can set aside the appropriate amount for taxes. Life Planner's Savings Goal Tracker can help you allocate funds for taxes to avoid surprises when filing!
4. Understand Deductions You Can Claim
As a commission-based worker, there are several deductions you may be eligible for, such as:
- Business-related travel expenses
- Home office deductions
- Work-related supplies or equipment
- Commissions paid to other individuals (if applicable)
By carefully tracking all your expenses using Life Planner’s Expense Tracker, you can identify deductible items and reduce your taxable income. This can make a big difference in lowering your overall tax bill.
5. Pay Quarterly Estimated Taxes
Because commission-based income is often irregular, you may need to pay estimated taxes quarterly. The IRS expects self-employed individuals to make these payments four times a year, based on what you estimate you’ll owe. Using Life Planner’s Savings Goal Tracker, you can set aside the right amount for each quarter and avoid any penalties for underpayment.
6. Stay Organized and Keep Track of Your Forms
When you work on commission, you'll likely receive forms like the 1099-MISC or 1099-NEC from the businesses that paid you. These forms report your income to the IRS. Make sure you keep a copy of each form for your tax records. Life Planner’s Financial Reports tool can help you organize and manage all your income documentation in one place.
Download Life Planner to Simplify Your Tax Filing
Managing commission-based income and taxes can be a hassle, but with the right tools, you can make the process smoother. Life Planner offers a range of features, including the Expense Tracker, Savings Goal Tracker, and Financial Reports, to help you track income, expenses, and taxes, so you’re always prepared for tax season.
Stay on top of your finances and make tax filing stress-free by downloading the Life Planner app today. Get started by downloading it from Google Play or App Store. Let Life Planner help you stay organized and focused on what matters—maximizing your commission income and minimizing your tax worries!