Can an LLC Help Real Estate Agents Keep More of Their Commissions?

Ask any real estate agent about their favorite part of the job, and “commission day” will probably rank high on the list. But ask them about their least favorite part? That’s often tax season. Between self-employment taxes, business expenses, and the complexities of 1099 income, real estate professionals face a unique financial landscape. This has led many agents to ask: Should I form an LLC to keep more of my commissions?

The answer is: yes, in many cases an LLC can be a smart move. Whether you’re closing your first deal or running a team, forming an LLC can help you reduce taxes, limit liability, and look more professional in the eyes of clients and brokerages.

Understanding Real Estate Agent Status: Independent Contractors

Most real estate agents operate as independent contractors, not employees. That means you:

• Receive income on a 1099 (not a W-2)
• Pay self-employment tax (15.3%) on net income
• Are responsible for managing your own expenses and deductions

In this setup, it’s up to you to create the right business structure—and that’s where an LLC can come in handy.

What an LLC Can Do for Real Estate Agents

1. Limited Liability Protection

If a client sues you over a deal gone wrong, an LLC helps shield your personal assets. While your brokerage typically carries Errors & Omissions (E&O) insurance, your own LLC adds an extra layer of protection—especially if you run a team, hire assistants, or co-invest in properties.

2. Tax Structure Flexibility

Forming an LLC doesn’t automatically save you money on taxes—but it opens the door to an important option: S-Corp election.

Here’s how it works:

• By default, your single-member LLC is taxed like a sole proprietor
• If you elect S-Corp status, you can pay yourself a “reasonable salary” and take the remaining profits as distributions
• This can significantly reduce your self-employment tax burden on the distribution portion

Many real estate agents start seeing savings once they’re earning $50,000–$70,000+ in net annual income. You’ll need to run payroll and file additional tax forms, but the savings can be well worth it. A CPA can help you set this up properly.

3. Financial Separation and Bookkeeping Simplicity

LLCs make it easier to open a business bank account, use accounting software, and track everything from mileage and signs to marketing and home office deductions. This simplifies tax time and helps you stay audit-ready.

4. Professional Branding

Instead of operating as “Jane Smith, Agent,” you could build a brand like “Summit Realty Solutions LLC.” Clients and vendors often take you more seriously when you operate under a business name, and it opens the door to expansion later if you bring on team members or assistants.

When an LLC Makes Sense for a Real Estate Agent

You should consider forming an LLC if you:

• Consistently earn $40,000+ per year in commissions
• Have significant business expenses to track and deduct
• Plan to grow your business beyond solo sales (e.g., hiring assistants or forming a team)
• Want to reduce personal liability exposure
• Invest in real estate on the side and want to consolidate under one business entity

How to Set Up an LLC for Your Real Estate Business

1. Check with your brokerage – Some states and brokerages have rules about agents receiving commissions through LLCs. You may need to get approval or register your entity with the state real estate board.
2. Choose a business name – Many agents use something like “Smith Real Estate Group LLC” or “Sunrise Homes & Investments LLC.”
3. File Articles of Organization – Submit to your Secretary of State (filing fees usually range from $50 to $300).
4. Get an EIN from the IRS – This is required for banking and taxes.
5. Open a business bank account – Deposit your commissions and pay for expenses from here.
6. Consider S-Corp election – If your profits warrant it, you can file IRS Form 2553 and work with a payroll provider to pay yourself a salary.

Real-World Agent Scenarios

Melissa – Suburban Solo Agent

Melissa earns $95,000/year in net commissions. She formed an LLC and elected S-Corp status. Her CPA helped her set up payroll to pay herself a $50,000 salary and take the rest as distributions—saving her nearly $5,000/year in self-employment taxes.

James – Investor and Agent

James sells homes part-time but also owns a few rental properties. He formed an LLC to keep his commissions and rental business under one roof, improving liability protection and bookkeeping efficiency.

Tanya – Growing a Team

Tanya started with just herself but now has two assistants and a buyer’s agent. Forming an LLC helped her formalize team structures, handle expenses through payroll, and expand without exposing herself to extra legal risk.

State and Broker Restrictions to Consider

Some states (like California and Texas) have specific licensing rules about how real estate commissions are paid. Often, commissions must go directly to the licensed individual—not the LLC—unless the LLC is also licensed.

To navigate this:

• Check with your brokerage and local real estate commission before forming an LLC
• You may need to form a Professional LLC (PLLC) or register your entity with your state’s Department of Real Estate
• In some cases, your LLC can be a management company receiving business income that isn’t directly tied to commissions

Extra Tips for Real Estate Agents with LLCs

1. Use Bookkeeping Software

Track expenses, mileage, client gifts, and advertising through platforms like QuickBooks, Wave, or even spreadsheets if you’re just starting out.

2. Consider Insurance

Errors & Omissions (E&O) is typically covered through your brokerage, but if you work independently, make sure you carry your own policy. You may also want general liability insurance.

3. Build a Strong Brand

Your LLC name can be used on signs, websites, and flyers to build a consistent, professional brand that goes beyond just your name.

Keep More, Worry Less

Real estate is a people business—but it’s also a numbers game. If you’re earning consistent commissions, forming an LLC is one of the smartest financial and legal decisions you can make.

It won’t close deals for you, but it will protect what you’ve earned. And when tax season rolls around—or opportunity knocks—you’ll be ready, with a business that’s as structured and professional as you are.