Setting up an LLC is a must if you’re a real estate agent starting out in the industry. Even those real estate agents who work for brokerages function in a similar capacity and file 1099 forms for their tax returns. The majority of real estate agents are self-employed, independent contractors. Compared to salaried employees, independent contractors typically have greater freedom and income potential, but they are also subject to additional legal obligations. As an independent contractor without a corporate entity distinct from you, you can be held personally accountable for any damages, for instance, if a home seller or buyer sues you. If you don’t have an LLC protecting you, you risk losing your house and personal savings.
Benefits LLCs Provide for Real Estate Agents
There are other benefits to creating an LLC if you work as a real estate agent in addition to limited liability protection. Great instances include:
Tax flexibility: If you have an LLC, you are able to decide to be treated as a S Corporation with the IRS, which can help you save money on self-employment taxes.
Separating Personal and Business Funds: Combining personal and business finances, such as by charging business expenses to a personal credit card, is a typical yet serious error made by new real estate agents. Your risk of personal responsibility resulting from the commingling of cash is greatly reduced if you also have an LLC and a business bank account.
Increasing Professional Credibility: Buying or selling a home is a major investment that can change your entire life! In order to work with someone they view as professional—someone they can trust with all the uncertainties and changes they’re about to face—potential clients will unquestionably want to engage with them. Possession of a business name and operation through an LLC are signs of a trustworthy, honest businessman. An LLC can be very helpful to your real estate profession for many different reasons. In most situations, failing to set one up would be a grave mistake.
After Forming an LLC, Other Things to Consider
There are various additional steps you can take after creating an LLC for your real estate operations that can provide additional advantages, such as:
getting a tax identification number for employees (EIN).
obtaining a S Corporation election from the IRS for your LLC. You can increase your tax flexibility by doing this. To do this, complete IRS Form 2553.
opening a bank account for a business. This can help you maintain financial segregation between your personal and professional accounts and raise your credit score.
contacting your broker to update your W-9 Form. List the name of your new entity and bank account.
transferring, if permitted by your state, your individual real estate license to your LLC.
confirming any costs, requirements, or limitations relating to your LLC with the regulatory body or commission that granted you a real estate license.
being informed of any extra costs or filings. The cost of incorporation might range from $40 to $550. It may also be required to file an annual report with a filing fee.
Any small business owner must have an LLC because they serve as a protective barrier separating personal funds and interests from business spending and initiatives. LLCs also provide your company legitimacy with customers, other businesses, and the government. Consider learning how to license oneself as a crucial step in launching your new endeavor. Take the time to do so.