Tax Season Has Arrived: How Should You Prepare

By: Connor Dombal

Tax season is a stressful period for most people, but it is also the perfect time to assess your business standing and lay the groundwork for a prosperous future. Stress of juggling irregular income, business expenses, or complex record-keeping doesn’t have to define your tax season. With the right preparation and a clear understanding of how to structure your business for you, you can reduce stress, maximize deductions, and set yourself up for a smooth financial year.

RLTY is here to empower agents at every level, no matter where they are in their careers. Here are some key areas and topics every agent should review as tax season approaches.

1. Know Your Top Write-Off Opportunities

Real estate agents have access to a number of handy business deductions, and understanding what you can claim helps you keep as much of your hard-earned money as you can.

Common Deductible Expenses

• Marketing & Advertising
  Website costs, digital ads, business cards, signage, photography, staging materials.
• Vehicle & Travel Costs
  Mileage, parking, tolls, and travel for showings, open houses, and client meetings.
• Home Office Expenses
  A dedicated workspace may qualify for a portion of rent, utilities, and internet.
• Professional Services
  Legal fees, accounting services, tax prep, coaching, and consulting.
• Continuing Education & Licensing
  CE courses, training programs, license renewals, and industry conferences.
• Technology & Tools
  CRM systems, software subscriptions, laptops, phones, printers.
• Client‑Related Costs
  Gifts, meals, and hospitality are tied directly to business development.

Phones, computers, internet service, and cars are all essentially deductibles that every agent can claim. Additionally, RLTYco’s fee for our flagship commission advance is a deductible business expense. It is not uncommon for people, let alone real estate professionals, to miss out on deductions and end up paying more by not claiming all the deductions they can. Additionally, it is important to track expenses consistently, with a clear system: even something as simple as a spreadsheet will make a meaningful difference at tax time.

2. Understanding How Your Business Entity Choice Impacts Your Taxes

The way you structure your real estate business affects how you’re taxed, how you pay yourself, and how much administrative work you’re responsible for. Many agents choose an entity type early in their career without fully understanding what it means  or how it affects their bottom line. A simple breakdown helps clarify the differences.

Sole Proprietor (Default for Most New Agents)

If you haven’t formed a business entity, you’re automatically considered a sole proprietor.

How you’re taxed:

• All income is reported on your personal tax return.
• You pay full self‑employment taxes on your net income.
• No separation between personal and business liability

Often utilized by Brand‑new agents or those with very low income who want a simple setup, or agents who are unaware of how easy establishing an LLC actually is.

Single‑Member LLC (The Most Common Choice for Agents)

An LLC is a legal structure, not a tax strategy, but it’s often the best foundation for independent agents.

How you’re taxed:

• By default, it is the same as a sole proprietor.
• You still report income on your personal return.
• You can elect S‑Corp status later if your income grows.

Why agents like it:

• Liability protection
• Professional branding
• Flexibility to change tax status later
• Minimal administrative burden

Best for:
Agents who want legal protection and a clean business structure without extra complexity.

LLC Taxed as an S‑Corp (A Strategic Upgrade for Higher Earners)

An S‑Corp is not a separate business type but rather a tax election you make after forming an LLC.

How you’re taxed:

• You pay yourself a “reasonable salary” through payroll.
• The remaining profits can be distributed.
• Distributions are not subject to self‑employment tax.
• Requires payroll, bookkeeping, and additional filings

Why agents consider it:

• Potential tax savings once income is high enough
• More predictable compensation structure

Best for:
Agents with consistent, higher net income who can justify the added administrative work.

C‑Corporation (Rarely the Right Fit for Agents)

C‑Corps are designed for large companies with complex ownership structures.

How you’re taxed:

• The corporation pays taxes on its profits.
• You pay taxes again on dividends (“double taxation”)
• More rules, more paperwork, more cost

Best for:
Not typically recommended for independent real estate agents.

A Simple Way to Think About It

• Just starting out → Sole Proprietor or LLC
• Growing your business → LLC (default taxation)
• Consistently high income → LLC with S‑Corp election
• Large, multi‑owner company → C‑Corp (rare for agents)

Understanding the different forms agents might operate under, and the differences between them, helps you plan ahead, avoid surprises, and choose the structure that supports your long‑term goals.

3. Structure Your Business Correctly

Most agents operate as sole proprietors, which leaves them and their assets, not just their business, at risk. Every agent’s situation is unique, but LLCs are the most practical and best choice for almost every independent professional.

Key Benefits

• Simplicity
  Easy to form, easy to maintain, and minimal administrative burden.
• Flexibility
  You can remain taxed as an individual or elect S‑Corp status later if your income grows.
• Professionalism
  Operating under an LLC name can enhance credibility with clients and partners.
• Liability Protection
  Your personal assets are generally shielded from business‑related claims.

LLCs are simple, very flexible, and allow agents to present themselves in a more professional manner, all important aspects that RLTYco’s President & Co-Founder, Daniel Kennedy Esq., points out as key reasons independent real estate professionals should shift from an independent contractor 1099 to an owner and operator of their own LLC. (For more insight on the topic, visit our podcast, in which Daniel, as a guest for RLTYco’s Agent Brew, breaks down how agents can best protect themselves with the correct legal entity. Real estate involves contracts, client funds, and potential disputes, and in today’s litigious society, that comes with risks. An LLC creates a clean separation between your personal and business life — without the complexity of a corporation.

Common LLC and S‑Corp Misconceptions

Many agents have heard from friends or colleagues about which business structure would work best, often leading to conflicting advice. Clearing up the most common misunderstandings helps you make informed decisions.

Misconception 1: “An LLC automatically saves you money on taxes.”

An LLC by itself does not change how you’re taxed. It’s a legal structure, not a tax strategy. By default, a single‑member LLC is taxed exactly the same as a sole proprietor; what changes is the assets at risk, not the taxation a person faces.

Misconception 2: “You need an S‑Corp to be legitimate.”

Not true. Plenty of successful agents operate as sole proprietors or LLCs. An S‑Corp is a tax election, not a business type. S-Corps only make sense once your income reaches a certain level, as S-Corps come with significantly more red tape and stipulations that are overkill for most agents.

Misconception 3: “An S‑Corp is always better.”

S‑Corps can reduce self‑employment taxes, but they also come with payroll requirements, stricter bookkeeping, and additional costs. It’s not a one‑size‑fits‑all solution; consider what makes the most sense in your personal situation. Oftentimes, LLCs will work perfectly for most agents.

Misconception 4: “Forming an LLC protects you from all liability.”

An LLC provides legal separation, but it doesn’t replace insurance, contracts, or good business practices. Just because personal assets are not at risk when an agent operates via an LLC doesn’t mean agents should conduct themselves any differently than when they operated as sole proprietors.

4. When to Consider Paying Yourself Through Your LLC, and Grow Beyond

If you have already made the decision to operate as an LLC, the issue of payment might be on your mind, and tax season is the perfect time to consider it, since how you are paid matters. If you operate as a simple LLC (no S‑Corp election), you typically pay yourself by taking “owner’s draws.” But once your income reaches a certain point, it may be worth exploring a different approach.

When an S‑Corp Election Might Make Sense

• Your net income is consistently high enough that self‑employment taxes become significant.
• You’re comfortable with additional bookkeeping and payroll requirements.
• You want to split income between a salary and distributions.

Why This Matters

Paying yourself through payroll (as an S‑Corp) can reduce your tax burden, but only when the numbers justify the added complexity. Think quarterly meetings with minutes kept and strict agendas, and more nuanced filings on annual or quarterly schedules. Many agents don’t reach this point, which is perfectly fine. Designating your LLC as an S-Corp with the IRS is a big step, and agents should consider it only when ready; it’s more than just a steady, predictable income.

Signs You Might Be Ready

• You’re earning more than you need to cover personal expenses.
• You have a reliable accountant or tax professional.
• You want to formalize your compensation structure.
• You’re planning long‑term business growth.

If you’re ready to take that step, visit RLTY Legal, where you can use RLTYco’s trusted partner and leader in fast, reliable internet-based legal services, LegalZoom, where RLTY and LegalZoom have partnered to provide agents with clear, fast, and reliable legal services tailored to their profession.

5. Practical Steps to Take Before and During Tax Season

Before Tax Season

• Organize receipts and categorize expenses.
• Review your income sources and commission statements.
• Confirm your estimated tax payments.
• Meet with a tax professional to discuss your business structure.

During Tax Season

• Double‑check mileage logs and home office calculations.
• Gather 1099s, brokerage statements, and business bank records.
• Review deductions with your accountant.
• File early if you expect a refund or need financial documentation for lending.
• Adjust your quarterly tax plan based on last year’s performance.

Tax Season Doesn’t Have to Drive You Crazy

With the right preparation and proper research, agents can protect their income, reduce surprises and undue stress, and make smarter financial decisions. Operating as a sole proprietor is nothing to be ashamed of, but take the next step and form an LLC. RLTYco’s legal services, powered by LegalZoom, offer agents easy, clear pathways to bettering their business. The most basic package RLTYco offers for LLC formation is free, leaving agents only to pay state filing fees!

You also don’t have to take the burden of filing on yourself. Visit RLTY Tax to discover filing options tailored specifically for real estate agents.