Realtor's Guide to Tax and Legal Freedom
At Koontz & Associates, we are committed to helping real estate professionals do two things:
- Minimize your taxes
- Maximize your deductions.
This guide will explain what type of business entity real estate professions should create, how to report to the IRS (quick reference infographic) and why you should do it this way.
Very few real estate agents know that they can make more money by creating a business entity and not filing Schedule C of their 1040. You may be under the impression that it is confusing and expensive. We are here to debunk these myths and show you that partnering with Koontz & Associates will help you earn more money each year.
Types of Business entities for real estate agent
The most popular entities to set up are Professional Association (PA) or a Professional LLC (PL). Ultimately, the decision of what entity to establish is based on size of your company, the nature of your business, your legal relationships and your tax consequences. For real estate professionals, these factors almost always result in the creation of a PA or PLLC.
Establishing your entity is the first step to reducing your tax liabilities. Now let's see how to properly use your entity.
Using your entity
One of the biggest mistakes many agents make is forming a PA or PL, but never changing their license with Florida Real Estate Commission (FREC). The problem is that commission checks will continue to come to your individual name and you wont reap the benefits of your business entity.
Here is how to property use your entity:
- Obtain TAX ID Number
- File an election for the LLC to be taxed as an S-Corp (more information below).
- Change your name with FREC to the name of the LLC.
- Change your name with your broker to the name of the LLC to ensure checks are paid to the LLC and not your individual name.
- Open a bank account for the LLC and obtain credit or debit card.
Ultimately, you will be acting as a business rather than an employee. Why? If you don't act like a business, the IRS, nor any court, will treat you like a business.
Tax your entity properly
80% of agents report their income on a Schedule-C of their 1040, which is the best way to ensure you are paying the highest tax.
We recommend taxing your PA or PL as an S-Corp for two big reasons:
- Save 7.65% - the employer portion of the employment tax.
- Certain deductions are less interesting to IRS for audit purposes.
As an S-Corp, you will still be a PL, but taxed differently. Most agents don't know about this or they think it's too complicated. It's not! Here is how to do it:
- Form an entity (PA or PLLC)
- Send application to FREC to move license to that entity.
- Inform broker so commission is paid to entity.
- File form 2553 within 60 days to notify the IRS. If not, your entity will be disregarded and you will still be filing on Schedule C of your 1040.
- Keep a separate business bank account.
Get in touch with one of our attorneys immediately if you have any questions. You can begin using your entity benefits as soon as you establish it. There is no benefit to waiting until next year.
- Benefits of working with a real estate attorney
- Commercial Real Estate
- Documentary Stamp Taxes
- File as an S-Corp Quickguide
- Know the difference between a 1099-A and 1099-C
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- Real Property Transactions Involving Foreign Individuals or Entities
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