Real estate agents earning over $60,000 as sole proprietors pay 15.3% self-employment tax on all profits. An S-corp election lets you split income into a salary (taxed normally) and distributions (no self-employment tax), but requires proper payroll, a defensible salary, and clean books or the IRS will come after you.
If you're a realtor making over $60K and you're not an S corp, you're probably overpaying the IRS by thousands every year. Most real estate agents start as a sole proprietor or single-member LLC. This is a great starting point, but it can mean higher taxes. I'm talking federal tax, state tax, and that 15.3% self-employment tax, all coming out of your net profit. Now here's how an S corp can change things. It lets you split your income, part salary, part distribution. This means only the salary gets hit with that 15.3%, which is where the real tax savings come in. But, and this part matters, becoming an S Corp isn't just a box you check. You need to run payroll, choose a reasonable salary, set up the entity properly, and keep clean books. If this is done wrong, it can cause problems. But when it's set up right, it's one of the most powerful shifts a realtor can make.
