Most people think of a Limited Liability Company (LLC) as a business entity for those who are self-employed. However, there are many reasons why real estate agents should consider forming an LLC. In this blog post, we will explore some of the advantages of having an LLC and dispel some of the myths about LLCs.
A Limited Liability Company (LLC) is a business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally liable for the debts and obligations of the company.
An LLC can be formed in any state and has the ability to do business in all states. LLC.
LLC’s are popular business entities because they combine the pass-through taxation of a partnership with the asset protection of a corporation. You can form an LLC for your real estate brokerage, rental properties, managing properties you own, or even just as a solo real estate agent.
In this article, we will be discussing why real estate agents in particular benefit from having an LLC and some common misconceptions about them. The information in this blog post will serve as general knowledge, not legal advice. If you need help creating an LLC or any other legal matters, consult with a local attorney in your state.
Limited Liability Protection:
As mentioned earlier, one of the biggest advantages of forming an LLC is the limited liability protection it offers to its owners. This means that the owners of an LLC are not personally liable for the debts and obligations of the company.
As a result, if your LLC is sued and incurs debts, the creditors cannot go after your personal assets to settle those debts. However, there are some exceptions…
• Personal Guarantees: If you personally guaranteed a loan, credit card account, or any other debt prior to organizing your LLC, then you are personally liable for that debt. It does not matter whether you are organized as an LLC or corporation; when you give a personal guarantee it means that in the eyes of the law you are putting your name on the line with everything in your possession.
• Sole Proprietorship/Partnership: An LLC offers limited liability protection only to its owners (also known as members), not employees. If you organize an LLC but continue to work as an employee for the company, then you are still personally liable for any debts or obligations of the LLC incurred during your employment.
The best practice is to have a written operating agreement between all members of the LLC that clearly states who is responsible for what debts and obligations. This way everyone knows their role within the company and cannot shift blame onto another person.
In a business where you deal with lots of people, personal property, real estate property, and more. You would want this type of protection in case anything unfortunate happens.
Business credit opportunities
Business credit is very beneficial when looking to purchase a large item such as a home, office space, or really anything you need for your business. When it comes time for you to apply for a credit/loan the creditor can look at your business credit score and not your personal credit score.
The only way to build business credit is by establishing yourself as a formal business by creating an LLC and getting a small business bank account in the name of your business. From there, you can begin to open up tradelines in the name of your business.
As a real estate agent, there are a few ways that you can use business credit.
1. Business Credit Cards: A business credit card is a great way to start building your business credit history. You can use a business credit card to make everyday purchases for your business, such as office supplies, marketing materials, and even travel expenses.
As long as you make all of your payments on time and keep your balance below 30% of the limit, your business credit card will help to build your credit history.
2. Business Loans: A business loan is a great way to finance a large purchase or get money for working capital. When you apply for a business loan, the lender will pull your business credit report in addition to looking at your business income.
3. Real Estate Purchases: If you’d like to start investing in real estate, you can acquire financing and properties in your business name even if your personal credit is not the best. Many investors choose this route when they want to keep their personal assets separate from their business assets.
4. Leasing or Renting Vehicles: Another great way to establish yourself as an established small business is by leasing or renting vehicles for your company’s use. This has become more common but with the increase of sharing economy companies like Uber and Lyft. As a real estate agent, you drive everywhere and you probably use your vehicle for more business than pleasure.
Therefore, you can have your vehicle in your business name and enjoy the benefits that come with it.
Tax Advantages
An LLC has its tax advantages that as a real estate agent, you can take part in. When it comes to filing your taxes, there any many ways of going about it as a business owner. One of the common ways for real estate agents is to file and be taxed as an S-Corp.
S-Corp stands for “Subchapter S Corporation.” This is a specific type of corporation that is regulated by the IRS. To qualify for S-Corp status, your business must meet the following requirements:
1. The business must be a U.S. company or a foreign company that conducts business in the U.S.
2. The business must have only one class of stock
3. The business cannot have more than 100 shareholders
4. The shareholders must be individuals, not other businesses
5. The business must file Form 2553 with the IRS to elect S-Corp status
There are a few benefits of electing S-Corp status for your business.
1. You can write off certain business expenses for your tax returns
2. You get to pay yourself a salary and take taxes out of that salary, which means you don’t have to worry about double taxation on the income from your rental property or home sales commission
3. If you are married, filing taxes with an LLC is more beneficial than filing separately as a single person because it allows you to take advantage of all deductions and credits available to a business owner versus a non-business owner
4. As a real estate agent, I recommend going with the full deduction for any type of vehicle used in your business– since it’s essential for your job anyway!
5. Your self-employment taxes should be less because you are only responsible for paying a portion of your self-employment taxes. Usually, an employer is responsible for the other half
6. As a real estate agent who is looking to use your business credit cards and build personal business credit, you can make all of the purchases through the business tax-free up to 50% of your W-2.
There are many more advantages that your CPA can cover with you but these are just a few. Again, this is not legal nor financial advice and you should talk to an attorney in your area to find the best route for you.
The advantages of an LLC as a real estate agent are many. In addition to the tax benefits, you’ll enjoy greater convenience and flexibility with your personal assets when filing taxes. You can also take advantage of business credit cards without worrying about building personal credit–and there’s no limit on how much you do!
Talk to a CPA for more information about what an LLC can do for your small business needs. If you want more strategies for building business credit, join my Discord where you can have a community to support your efforts and gain insider info!
