How to set up an LLC as a real estate agent to save on taxes

How to set up an LLC as a real estate agent to save on taxes

[@terikoonserealtor5539]

Great information! Thank you!

[@johngluch]

Glad it was helpful!

[@DeniseAyora-wd9my]

Great content I needed to hear this I just got my real estate license and want to get started building my business but I didn’t know that was possible

[@johngluch]

Thanks Denise I'm so glad it was helpful!

[@NaMatyx8ne]

THANK YOU!!!!!!!!!!

[@johngluch]

You are welcome! Glad it was helpful!

[@nidia8518]

The video said you're going to link info. for the panelists. Did I miss it? Sorry I can't see it.

[@johngluch]

Hi! Can you please share to me your email so I can send the link?

[@JimmyWestra]

Can you use an EIN to start a new PLLC?

[@johngluch]

Yes you'll likely need the EIN for the new PLLC!

[@Rauce_ProGuard]

Is this just for cali and arizona. Im in texas. Does this still apply. I should make a pllc?

[@johngluch]

Im guessing it does but youd want to check with a CPA in your state to confirm

[@terikoonserealtor5539]

How can I contact Mark for help?

[@johngluch]

Shoot me an email and I'll connect you! [e-mail]

[@bwroolie]

Can a new real estate licensee [sales associate] operate through an LLC legally?….
Here is the scenario:
A California real estate licensee [BPC §10014] licensed simply as a real estate salesperson [id §10016] who is not a real estate broker [id §10015], a broker associate [id §10015.3], nor a responsible broker [id §10015.1], is hired as an independent contractor by a real estate broker and, upon the sale of a property, is entitled to a commission payable by the licensed broker to the real estate licensee as per their previously negotiated terms.
No problem, however, the real estate licensee has formed an LLC to operate its real estate agency activities. Reasons for doing so are believed to be to obtain liability protection for its members and managers [the real estate licensee] and to minimize excessive self-employment taxation of his/her commissions.
The question is then, can the licensed real estate broker pay the LLC directly any commissions that were earned by the real estate licensee?
Answer, No…
Here’s why:
If the licensed real estate broker pays the LLC directly, then, the broker is in violation of BPC §10137 [paying commission to a non-licensed entity; LLC is not the licensee].
If the licensed real estate broker pays the real estate licensee directly, then, the real estate licensee is subject to self-employment tax for the entire commission as he/she accepted payment as an individual and is therefore deemed a Sole Proprietorship.
Any money thereafter transferred into the LLC is merely a contribution made by the LLC member and is not deemed income earned by the LLC. Further expenses claimed by the LLC can only offset basis as there is no in come except for any income earned that is not commissions paid to the licensee.
The bottom line is the LLC is not authorized to receive commissions as it is not an authorized licensee of the Department of Real Estate and any commission paid to the licensee directly is commission paid to a Sole Proprietor and thus subject to self-employment tax.
It is clear that some liability protection is already provided to the real estate licensee by the real estate broker through the hybrid mix of employer-employee and independent contractor relationships. [Business and Professions Code §10032 and §10132, and Civil Code §2079.13(b)]
There seems to be, however, no escaping the self-employment tax for a real estate licensee, unless, the licensee is a shareholder of a corporation [with an S-corp status] that is licensed by the Department of Real Estate. This would be a license separate from the real estate licensee license or real estate broker license.
It’s important to note that a corporation is not eligible for a corporate broker license issued by the Department of Real Estate if it does not have a responsible broker as one of its officers; a credential a new real estate licensee does not have nor is eligible for except after two year experience among other requirements.
To stay in compliance with the Department of Real Estate and the Internal Revenue Service, a real estate licensee should think carefully about how they manage and report their commissions during their first two years of service. Whereas one who has a real estate brokers license can incorporate and secure a corporate broker license thus affording them legal protection and tax advantage while remaining in full compliance of the aforementioned governing authorities.