Real estate agents can choose a structure that best suits their professional and financial objectives. According to research, the two most common business structures used by real estate professionals are S-Corps and LLCs. Both offer greater tax benefits than a C-Corp or sole proprietorship. S-corps are better than LLCs from a tax perspective. They offer more benefits, legal protection and increase your reputation with clients.
Take a closer look at the five top tax benefits that an S-Corp can provide for real estate agents.
1. Reduce Self-Employment Taxes
It’s crucial to keep track of self-employment taxes, as they can add up quickly.
All net income of LLCs is subject to a 15.3% SE Tax
Real estate agents who are registered as LLCs or sole proprietorships must pay self-employment taxes at a rate of 15.3%. 12.4% of this tax goes to Social Security, and the rest 2.9% to Medicare.
S-Corps allows splitting income: Salary vs. Distribution
You can divide your income in two when you convert to S-corp. One part is a salary, and a distribution to shareholders. The first part of the income is taxed but not the second. The entire salary portion is subject to payroll taxes, including social security and medicare. S-Corps are only advantageous if you are able to save money by setting the “reasonable salary”. At the same time, the IRS has set certain rules for the salary.
Real estate agents who earn $75,000+ can save up to $10,000 per year.
Assume you’re a real estate agent who follows a sole proprietorship and earns more than $75,000. You will be charged a 15.3% self-employment tax, which is $11,475. You will also be required to pay federal and state income tax.
When you switch your company to an S-Corp structure, you can choose to split the income as salary and distribution. There are also no self-employment taxes as you will be considered an employee. You can save anywhere from $5000 to $10,000 in taxes per year due to these factors.
2. Pay Yourself a “Reasonable Salary” + Take Tax-Free Distributions
You are both an owner and an employee when your company is an S-corp. You can choose how to divide your income. Note that the IRS requires that S-Corps owners be paid a reasonable salary.
Payroll tax is only applicable to the salary portion
Many agents pay themselves a nominal or reasonable salary. This salary is subjected to payroll taxes including social security and medicare. Make sure your salary is equal to or higher than the minimum wage in your state.
FICA tax is not applicable to distributions
After paying a reasonable salary, you can take the rest as a distribution, which is not subject to FICA taxes. This means you get a certain amount as tax-free income.
You can decide how much goes to profit vs. salary
This arrangement offers you a lot of flexibility and allows you to keep more income. You can decide to distribute more money while maintaining the minimum wage rate.
This requires financial planning, and an understanding of the tax laws in order to be compliant and avoid IRS audits. Parr & Ibarra CPA will help you determine the best balance based on the amount of money that you earn and the tax rates in your state and federal jurisdiction.
3. Claim More Deductible Business Expenses
Switching to an S-corp also allows you to claim your business expenses as income. These deductions, however, must be documented in compliance with IRS guidelines.
Payroll processing fees, health insurance and retirement plans
Deductions for organization-related costs include employer-paid health insurance premiums, 401(k) contributions and payroll services. These deductions reduce your taxable income.
Business use of home, marketing tools and vehicle mileage
You can also deduct costs for your home office. These include vehicle mileage for client meetings, showings and listing fees, cost incurred for marketing and other expenses related to running your business. These expenses can all help you reduce your taxable income.
Parr & Ibarra CPA identifies industry-specific deductions
You can also take advantage of many deductions that are specific to your industry. Signage, staging costs, continuing education for improving your real estate business and MLS fees are some examples. Our experts will review your expenses and costs to determine if you are eligible for any deductions.
4. Take Advantage Of The QBI Deduction
You can take advantage of many tax benefits as an S-Corp. Here are some of the most important.
Tax deductions up to 20% on Qualified Business Income(QBI)
The IRS allows individuals to deduct something called qualified business income (QBI). Also known as the section 199A deduction. QBI allows you to deduct up to 20% of your taxable income. However, you must meet certain criteria in order to claim this deduction.
Available to S-Corp owners under certain income limits
QBI can only be claimed if your income is below certain limits. The limits for 2025 are $197,300 if you file a single return and $394,600 if you file a joint tax return with your spouse.
Payroll balance and entity structure are important.
To qualify for these deductions, your S-corp needs to be set up according to the current laws and your salary must be reasonable. We will help you structure your S-corp to meet the QBI requirements so that you can receive a 20% tax deduction.
5. Improve Your Business Credit Rating And Appear More Professional
Switching to S-Corp is more than just taxation.
S-Corp status increases credibility among lenders and investors
S-corps are more professional and show continuity of business when compared with sole proprietorships or partnerships. It reflects professionalism when you have your own bank account. This builds trust and credibility with customers.
Separate your business finances from personal finances
A S-corp also requires a separate bank account and a simplified payroll setup. Both of these add to the financial stability. You can then attract more customers, and also qualify for lines of credit and business loans.
Your real estate business is easier to hire, sell, and scale.
Stability and credibility are important for the growth of your business. This will be useful if you ever plan to sell or merge your business in future.
Real estate agents should consider switching their LLCs and sole proprietorships to S-Corp status due to these benefits. S-Corps also have downsides. So, be sure to consider all factors before making the switch.
Parr & Ibarra CPA can Simulate Your Tax Impact
Understand the benefits of an S-Corp and the downsides that come with it. Parr & Ibarra CPA, an experienced firm, can simulate your tax impact so that you can determine if the S-Corp structure is right for your company.
The first step in increasing savings is to understand the benefits of S-Corps and to choose to switch to one. To maximize its benefits, however, you will need to take extra steps such as paying your taxes on time and following the correct accounting procedures. We can help you with these tasks.
Entity review + EIN + Form 2553 filing
Before electing an S-Corp, talk to our experts to understand if this is the right move for your business. If you believe so, we can handle all the processes required to switch to an S-Corp. As a first step, it files Form 2553 and applies for an EIN.
Bookkeeping, W-2 payroll setup and quarterly tax filings
We at Parr & Ibarra CPA have a reputation for streamlined bookkeeping, and handling payroll. We can help you set up your W-2 payroll system and handle your quarterly filings.
Schedule a Consultation
As your business grows, Parr & Ibarra CPA in Keller, Texas can handle the increasing transactions while helping you save more money. We make sure that everything stays organized.
