Hey hey! I am a new Realtor in the Bay Area, California. I have heard that it is good to get a LLC or S Corp as a realtor. Currently, I have neither and I need to get that changed. So I was wondering if anyone had any advice on the benefits of either option and which one I should get. Thanks!
Many people suggest this, but the tax court has disallowed this structure for agents starting a few years ago. Fleischer v IRS I think. The Fleischer case specifically has to do with commission based jobs in real estate and insurance.
@George Adkins Actually we have this business structure, started out as an LLC and waited way too long to be treated as an S Corp for tax purposes but finally did it - just wish we had done it sooner. We use a CPA who handles a lot of businesses including real estate agents, and before using this company we had S Corp status (LLC treated as S Corp for tax purposes) and did our taxes through another company, no problem.
The issue with the legal case mentioned above appears to be that the person involved, who had an LLC treated as an S Corp, signed a contract to provide services with a client and the contract was just between himself (the person) and his client. There was no mention of his LLC, which should have been the party contracting to perform the services and the entity getting paid. So when he tried to declare the income as LLC/S Corp income, the IRS said no, you were the one getting paid, not your corporation.
I'm not an attorney but this is my understanding of what happened. Definitely for RE I believe it's best to be an LLC vs. sole proprietor, as it sounds like you already know, and I'm being told now that the bar for when it makes sense to be treated as an S Corp for tax purposes is likely closer to $50K income, not well into the six figures, as many people will tell you. And that may not be right for everyone, so definitely check, obviously, but no sense in waiting longer than you have to. Good luck.
@Irene Nash very informing! Thank￼ you I’ll have to continue to look into it and ask around.
@Russell Brazil thank you for your response! I will have to do some more research then.