A PLLC may help lower your tax burden

How does it work? As a sole proprietor your broker pays commission to you under your social security number. By forming a PLLC and electing to be taxed as a Subchapter S Corporation*, commissions are paid under a Federal Tax ID number thus avoiding self-employment tax. The tax scenario below is based on an annual income of $100,000 but consider the standard self employment tax rate is 15.3%. That means that even on profits from real estate commissions of $10,000 you'd be saving $1530. Offset that by the amount of money to file a corporate tax return and annual payroll form (not as scary as it sounds) and you can see that just about all Realtors who are making a profit could benefit from this business structure.

	Sole Proprietor	LLC Taxed as S Corp
Profit	$100,000	$100,000
Salary	$0	$25,000
Self Employment tax	$14,130	$0
Federal Tax	$11,462	$12,734
State Tax	$3,755	$4,009
Social Security/Medicare	$0	$1,913
Matching Social Security/Medicate	$0	$1,913
Total Tax Paid	$29,347	$20,569

Savings by PLLC filing as Sub S Corporation

$8,778




Information used with permission of:
Lamberson & Associates
609 S Gilbert Rd, Suite B
480-220-4111

Assumes: Tax year 2009, married filing joint status taking standard deductions.
*Please note that in order to save on self employment taxes, you must file additional paperwork with the IRS asking to be recognized as a Sub-Chapter S Corporation. Please refer to your tax professional for information on your potential tax savings.

This post is not to be construed as legal or tax advice. For advice on your own situation, please contact your accountant or CPA.