Real Estate Agents should be treated like contractors, not employees. Make sure you know the difference.
So you got into Real Estate with the intentions of being your own boss, making your own schedule, and making a ton of money! But what you might not have realized is now that you are in Real Estate, how does your pay work? How does the “Independent Contractor” status affect your yearly tax return? It can be quite overwhelming, especially if you’ve always worked for a company where they deducted taxes and you filed your yearly tax return based on a W-2. That all changes when you become an Independent Contractor.
Here are a few tips on what to do now that you are a professional Real Estate Agent.
- Open an LLC. What is an LLC, you ask? An LLC is a company formation. You need to create a company in order to get the best tax benefits for your business and status as an Independent Contractor. Get with a local attorney to help you with the filing. You can file online, but if you’ve never done it before, consult an attorney. If you are a single-member, you will want to file your LLC as an S-Corp to reap the most tax benefits. The name of your company can be anything you choose… such as “[lastname] Investments” “[initials] Homes.” Find examples online or come up with something creative! Refrain from using the words “Realty” or “Group” in your name, as you are not offering brokerage services. Examples can be “Landon Investments” or “BD Homes,” etc.
- Open a bank account specifically for your business. It’s critical to keep work and personal expenses separate. Once you get your LLC formed, open a business bank account with your favorite local bank. You’ll get a debit card and set of checks. Make sure all of your business expenses are ran through your business bank account. Business expenses for agents include travel expenses, fuel, advertising, computer & office supplies, client gifts, office dues, annual agent dues, supra fees, professional development (such as CE, books, training, etc). All of these items are deductible expenses. The reason you want these deductions is to reduce your taxable amount come tax time!
- Keep good records, AKA an accounting system. You need to set up a QuickBooks or other accounting system to keep your books in order, especially if you have an LLC. There will be quarterly and annual reports to file, and you’ll want to know if you’re budgeting properly for your business. This is something that can be very overwhelming for people, especially if you’ve never even looked at a Profit & Loss Statement. You can hire a local bookkeeper to help with all of this. They will have connections to CPA’s and keep up with your daily, monthly and yearly accounts to make sure you maximize your deductions and save the most money! In most cases, the amount you’ll pay a bookkeeper will be less than your total savings each year! Meaning, it pays tenfold to hire an expert!
As an agent, you need to focus on building your business! Eventually, you might want to hire an assistant or marketing coordinator. Having an expert to help with payroll, etc will be beneficial for you! Remember, you are now your own boss – make sure you set up your business that way!