Agent forming an LLC or S corp

8 Replies

I am currently taking an online course to become an agent in New York. One question I have is in regards to an LLC or S corp for tax purposes. I keep getting conflicting information on weather it is a option or not as a salesperson. If I remember reading correctly only a brokerage may do so. I am taking advice from BP and looking to speak with several CPA's, but I want to go in with some sort of direction in which I want to go if at all possible.

My LLC is owned by an S Corp because I didn't want to pay self employment tax. Distributions avoid that but are taxed regularly. I probably could have just had the S but I did the LLC first.

Thanks for that information. I was more of interested in as real estate agent if this was legal to form an entity as a salesperson. To my understanding it was only possible if I was a licensed broker.

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@John K. I'm no tax expert, but as an independent contractor, you should be able to file taxes as an S Corp if you elect to do so. The LLC is the business entity. The S Corp is a tax classification. They are two separate things.

I'm going to call @Brandon Hall in to explain this better than I can

@John K. what @Dawn Brenengen said is kind of right but kind of not. There is an S election that you can do as an LLC, but there is a true S corp as well. There are differences to them. An LLC is a partnership and you can elect pass through tax status. A true S corp is a corporation with pass through tax status because of election. The rules are different for both.You do not pay yourself a salary in an LLC but you do as an S corp. This means an LLC is great for renting, but a S corp is better for flipping houses to avoid short term capital gain taxes by paying part of the profit as wages.

As to your question about forming a corporate entity for your real estate license. I do not know the laws of your state but let me give you general principals to see if that helps. Generally only a PERSON can get a license, whether they are an agent or broker someone must pass the test. Now you may form a company to conduct your real estate business. That company must have a licensed broker to do real estate business, but it can employ secretaries, agents, etc, it can buy health insurance, buildings, etc. The thing to consider is that the broker or agent can never separate themselves from liability for an act they do themselves. If you drive a car drunk and hit someone they can sue you with no regard whether your car is owned by the company or you personally. Now a brokerage will often have many employees. The managing broker is not likely to be sued personally for a drunk agent hitting someone with a car unless he gave them the booze to drink. The company may be sued however for negligent entrustment if they supplied the car. Normally an agent would not be hiring employees or renting or buying a building, so why would you want to form a company? You cannot separate yourself from the liability you do yourself, and you have no employees. Now it doesn't matter if a broker who has an LLC does an unethical or improper act. The licensing authority can still pull his license or punish him. The same is true for an agent. The corporation is more to protect you from things that other folks do rather than what you do yourself. That being the case if you will not have employees why would you go through the time or expense of forming a corporation to be an agent? I hope that helps.

That does help thank you @Jerry W.

 As to your question why go through the time or expense. Well really was only looking at it from a tax standpoint. I am still learning, but I was just trying to get a better understanding on what would be the best way for writing off on taxes for things like mileage, gas, advertisements etc.. Is this all still possible without forming a corporation?

@John K. you are getting into stuff you need a CPA for, but mostly yes your expenses related to your job are usually deductible.  A visit with a good tax advisor would be a good place to start.  Maybe one of the CPAs here on BP will respond.

@John K. you also have to remember that in NY state their is a $500 annual fee for a corporation and only a $25 annual fee for an LLC.

You are probably better off operating as a sole proprietor.