One of the first decisions you have to make as a small business owner (and yes, a real estate agent is a small business owner!) is how to structure your new venture.
A business structure dictates how you operate, the tax guidelines you have to follow, and what kind of legal protection you have if problems arise; therefore, it is vital that you choose the right type of structure for your business.
When you start your own real estate investment company as a real estate agent, it is doubly important that you protect your assets with the right business structure. Due to the nature of the business, it is essential that you are protected from potential consequences of litigation. Dig deeper into why an LLC structure for real estate agents is important and how Royal Legal Solutions can set you up for success.
A Limited Liability Company (LLC) is a type of business structure that protects its owners from losing personal assets if the company is sued. An LLC also offers tax advantages that differ from a Sole Proprietorship or more complex corporations.
As a business structure, LLCs are typically used by small business owners who want to limit their personal liability. This includes Realtors/real estate agents.
Real estate agents who also invest in real estate are considered small business owners. According to the IRS, real estate agents are treated as self-employed and considered a small business owner if they:
If you work for yourself and file a 1099, you are considered a self-employed independent contractor in the eyes of the IRS.
The short version? The best business structure for real estate agents who own a real estate investment business is an LLC.
An LLC structure for real estate agents provides several benefits to real estate agent investors over other business structures. Among them:
Protecting your personal assets is one of the biggest benefits of structuring your business as an LLC. If you are sued, your brokerage insurance may not cover the damages. If you operate as a sole proprietor, every single asset you own can be liquidated in a lawsuit.
When you structure as an LLC, however, your personal assets are protected. You would simply liquidate the LLC and start a new company. This is why an LLC is so important for real estate investors.
As an independent contractor, you are subject to the self-employment tax for independent contractors. The good news is that when you form an LLC and work with a knowledgeable legal real estate firm, you can choose to have your LLC taxed as a different type of entity.
An LLC is a legal designation rather than a tax designation; therefore, you can still be taxed as an S Corporation. S Corporations are not subject to the self-employment tax, which covers medicare and social security, that independent contractors have to pay, which benefits you.
When you structure as an LLC, you can use your LLC to start a Solo 401(k). With this account, you can buy tax-free investments, become a hard money lender and earn a high-interest rate on the money you loan. You can also loan money back to your LLC if needed.
An LLC operates as the face of your business. When you're talking with clients about potential investment properties, speaking on behalf of a business organization rather than your personal name goes a long way. This lends a sense of professionalism and trust to those you work with in the real estate investment industry.
As a real estate agent, you might not have considered the need for a corporate structure. But did you know 80% of real estate investors will be sued in their lifetime?
Are you prepared?
Don't let a frivolous lawsuit destroy your future. The correct LLC structure covers you in case your broker's insurance decides to leave you hanging. The right structure might be the difference between losing it all or just losing your LLC.
In the video below, Scott Smith, founder of Royal Legal Solutions, explains the best structure for real estate agents to pay fewer taxes through multiple tax strategies and shield themselves from litigation when deals go south.
When you work with a legal real estate team like Royal Legal Solutions, you set yourself up for success. You’ll learn how to maintain your LLC corporate structure to avoid losing your business. You'll benefit from our team’s expertise on asset protection structures that will protect your personal assets and build a wall of defense if a lawsuit happens.
Additionally, Royal Legal Solutions can help you work around the single-member LLC self-employment tax so your income is considered passive and you retain the financial benefits.
If you are a real estate agent who owns your own real estate investing company, ensure that you are protected from personal liability. Work with Royal Legal Solutions to structure your business as an LLC to avoid personal liability and gain the tax benefits of operating as a Limited Liability Company.
Want to make sure your real estate investing business is protected? Start with our investor quiz, and we'll help you find ways to protect your assets.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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