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Real Estate Agents

Whether you're freshly licensed or transitioning to full-time, understanding your financial responsibilities as a real estate agent is essential. At Small Business Solutions & Services, we specialize in helping Realtors build sustainable, tax-efficient businesses from day one. This comprehensive guide goes beyond the basics to give you real-world clarity on everything from choosing a business structure to claiming every deduction you're entitled to.

Business Structure 

Choosing the right business structure can significantly impact your taxes, liability, and growth potential. Here's how to think strategically:

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Sole Proprietorship

Most new agents default to this. It's the easiest to set up—no separate legal entity required. All income and expenses are reported on Schedule C of your personal return. However, there’s no liability protection and no separation of personal and business assets—a risky choice long term.

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Single-Member LLC

Forming an LLC gives you legal protection and more credibility. It is still taxed as a sole proprietor unless you elect otherwise. This is ideal if you're just starting out but want to protect your personal assets. You can upgrade to an S-Corp later.

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LLC Taxed as an S-Corp

If your net income exceeds $40,000–$60,000/year, an S-Corp election (via Form 2553) can reduce your self-employment taxes by allowing you to pay yourself a “reasonable salary” and take the rest as dividends, which are not subject to SE tax. This requires payroll services, quarterly payroll tax filings, and an S-Corp tax return (Form 1120-S)—but the tax savings often make it worth it.

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Partnerships or Multi-Member LLCs

If you're forming a team or co-owning with someone, you'll file Form 1065 and issue K-1s. Be sure to have an operating agreement and consult a tax advisor on equity splits and contributions.

Still Have Questions?
Check out our interactive
business structure guide.

Licensing Compliance & Insurance

Even after passing your state exam, there's more to do:

  • Activate license with a sponsoring broker

  • Register your DBA (if operating under a brand name)

  • Obtain a local business license (varies by city/town)

  • E&O Insurance is typically required by your broker

  • Join MLS, NAR, and your local Realtor association

  • Understand commission disbursement rules: some brokerages require commissions to be paid to the brokerage, then distributed to you (especially if you're an S-Corp)

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If you're operating under an LLC or S-Corp, ensure your broker agreement is updated to reflect the legal entity—not your personal name.

Financial Accounts

Separate your business finances from day one:

  • Business Checking: Required if you're an LLC or S-Corp. Avoid co-mingling.

  • Business Savings: Allocate 25–30% of income for taxes and emergency reserves.

  • Business Credit Card: Helps separate expenses, build credit, and earn rewards.

  • Accounting Software: Use QuickBooks Online for real-time tracking and tax readiness. Set up your chart of accounts specifically for real estate activities.

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If you receive 1099s under your name but operate as an LLC, request payors issue the 1099 to your EIN and business name going forward.

Bookkeeping

Realtors often have inconsistent income, so solid bookkeeping ensures you can plan and scale. Your books should include:

  • Income Types: Sales commissions, referral commissions, BPO fees, speaking engagements, bonuses

  • Expense Categories: Based on IRS guidelines and your business structure

  • Mileage Log: Use IRS-compliant apps (MileIQ, Hurdlr) or track manually. Document who, what, where, and why for each trip.

  • Receipts: Required for expenses over $75. Use apps like Receipt Bank, Hubdoc, or the QuickBooks app.

  • Reconciliations: Monthly matching of bank/credit card activity to books—vital for detecting fraud, avoiding double entries, and accurate tax prep.

  • Reports: Generate monthly Profit & Loss, Balance Sheet, and Cash Flow statements.

Taxes

Self-Employment Taxes

Realtors are considered self-employed and must pay both halves of Social Security and Medicare (15.3%). That’s on top of federal and state income taxes.

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Quarterly Estimated Payments

The IRS requires freelancers and sole proprietors to prepay their taxes quarterly if they expect to owe more than $1,000/year.

  • Due Dates: April 15, June 15, Sept 15, Jan 15

  • Use Form 1040-ES or let your bookkeeper estimate based on YTD income

  • Arizona also requires state estimated payments​

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Tax Filing

  • Sole Proprietors & LLCs: File with Form 1040 + Schedule C

  • S-Corps: File Form 1120-S, issue W-2 to yourself, and take distributions

  • Use a tax preparer who understands real estate-specific write-offs

Have Questions About Estimated Taxes? Check Out Our Estimated Tax Calculator!

Tax Deductions

The IRS allows you to deduct “ordinary and necessary” business expenses. Don’t leave money on the table—track these:

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Vehicle Expenses

  • IRS Standard Mileage Rate (67 cents/mile for 2024)

  • OR Actual expenses: gas, maintenance, insurance, lease, depreciation

  • Must choose one method per vehicle per year

  • Log must include date, destination, purpose, and mileage

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Home Office Deduction

  • Must be used exclusively for business

  • Methods: Simplified ($5/sq ft up to 300 sq ft) or Actual Expenses (percentage of utilities, rent/mortgage interest, insurance)

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Have Questions About the Home Office Deduction? Check Out Our Home Office Deduction Worksheet!

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Marketing & Advertising

  • Yard signs, professional photography, social media ads, website fees, logo design, listing flyers, CRM services

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Business Meals

  • 50% deductible when with a client or during a work meeting

  • Note: Who, What, Where, and Why should be recorded

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Education & Licensing

  • CE credits, coaching programs, mastermind groups, certifications (e.g., ABR, GRI)

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Office Supplies & Equipment

  • Laptops, phones, desks, printer ink, notepads, subscriptions (Canva, DocuSign)

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Legal & Professional Services

  • Bookkeeper, tax preparer, payroll provider, business coach, legal consultations

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Insurance

  • E&O, general liability, and self-employed health insurance (if no employer plan)

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Technology

  • Apps, tools, and cloud software used for business

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Client Gifts

  • $25 max per person per year deductible (IRS limit). Keep documentation.

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Summary

  • Track every dollar that comes in or goes out

  • Use software to automate what you can

  • Meet with a tax pro at least twice per year

  • Don't wait until tax season—plan all year long

  • Review your numbers monthly: what gets measured gets improved

  • Plan for the future: SEP IRA, Solo 401(k), HSA, insurance

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