Business Setup Essentials

Sole Proprietor vs. LLC

By default, an agent who does nothing is a sole proprietor: income flows straight to your personal return and there is no separation between you and the business. That is legal and cheap, but it offers no liability separation and no path to S-Corp tax treatment. An LLC separates your personal assets from your business activities, opens the door to S-Corp treatment once your GCI grows, and signals to vendors and clients that you operate as a real business — not a hobby. Most agents start as sole proprietors and form an LLC in their first profitable year.

Step-by-Step Formation

• Choose a business name that includes 'LLC' and is available in your state's Secretary of State database.
• File Articles of Organization with your Secretary of State (typically $50–$300).
• Apply for an EIN through the IRS website — free, takes about 10 minutes.
• Draft an Operating Agreement, even as a single-member LLC. Banks and brokers will ask for it.
• Open a dedicated business checking account. Never commingle personal and business funds.
• Register with your state's Department of Revenue if your state collects income tax.

Broker Compensation Setup

Most states require your broker to pay your LLC instead of you personally — and it requires a signed compensation agreement on file. Confirm with your broker, then provide your LLC name, EIN, and a W-9.

Banking: The Three Accounts Rule

Commission income arrives in lumps, so structure your banking so a good month cannot spend next quarter's tax bill.

• Operating account — where commissions land and business expenses are paid.
• Tax account — auto-transfer 25–30% of every commission the day it hits.
• Profit account — auto-transfer 5–10%; do not touch it.

Bookkeeping

Use QuickBooks Self-Employed or hire a bookkeeper at $100–$300/month, and reconcile monthly. Do not shoebox receipts and dump them on a CPA in March — clean books are what make deductions defensible and tax season boring.

Quarterly Estimated Taxes

As a 1099 contractor you owe federal (and usually state) estimated tax on April 15, June 15, September 15, and January 15. Miss them and you owe penalties on top of the tax. Nobody withholds for you — the tax account is what makes these payments painless.

Deductions Agents Miss

• Mileage (track every business mile — MileIQ or Everlance).
• Home office (dedicated space only).
• MLS, board, and license fees.
• Marketing, signs, photography, staging.
• Closing gifts (with limits).
• Continuing education and coaching.

S-Corp Election (When You're Ready)

Once you're netting roughly $50K+ from real estate, talk to a CPA about filing IRS Form 2553 to elect S-Corp tax treatment. This can save thousands per year in self-employment tax.