LEGAL BUSINESS FORMATION
Setting up a registered business entity, like a limited liability company for a real estate business is a necessary first step. An LLC is a separate legal entity from its owner. As a real estate agent setting up a single member (you) LLC provides you with countless benefits while still it all going on your personal tax return. No need for a separate business tax return.
Using a limited liability company provides you with the most tax flexibility.
An LLC is taxed on a pass-through basis, with the business profits or losses passed through to the owner’s personal tax return. Earnings are taxed at your applicable individual income tax rates and subject to Self-Employment taxes (which includes Social Security and Medicare taxes).
But, if the LLC meets certain IRS eligibility criteria, you can file an S corporation election with the IRS. With S corporation tax treatment, you are not subject to the Self-Employment tax. Sounds complicated? Let us help. Legally avoiding self-employment taxes could save you up to $10,000 on the first $100,000 you earn in a year!
COMMINGLING OF BUSINESS AND PERSONAL MONEY
Its often a struggle for real estate professionals to avoid combining their business finances with their personal finances. This is called commingling and can result in you having personal liability. Example, using Zelle or Venmo to reimburse a colleague for a business expense. We find that having an LLC with a business bank account and separate finances helps lower your chances of personal liability from the commingling of funds.