Should A Florida Real Estate Professional Become a PA, LLC or stay a sole proprietor?

The majority of Real Estate Licensees in Florida are independent contractors and one of the important consequences of this model is that the licensees are responsible for paying their own taxes to the IRS. One of the requirements under Internal Revenue code is that there must be a written agreement between the Broker and Associate with the verbiage affirming this business arrangement. The IRS has specific guidelines to determine how to qualify as an independent contractor.

Florida license law allows sales associates and broker associates to incorporate as individual licensees for the tax benefits and personal risk reduction.  This can afford tremendous tax savings and protect personal assets. 

The Statute is very specific in how to qualify for this form of licensing.  The licensees can choose between a Professional Corporation (PA), Limited Liability Company (LLC) or Professional Limited Liability Company (PLLC) and should seek the advise of their Accountant in deciding which corporate structure works best for their situation.

Although Florida licensing law requires that each licensee be issued a license in their legal name, if properly qualified the legal entity designation may be added to the license.

The first step in qualifying is to have the corporation created through the Florida Department of State’s Division of Corporations website. Please note that although licensees are allowed to incorporate, they may not be licensed or compensated in any way except their legal name; no trade names allowed. In order to ensure that the process is done correctly, the licensee’s attorney or accountant can set everything up for a fee.

Once the Articles of Incorporation have been created, the next step is to create a federal tax identification number on the Internal Revenue Service website.  If the licensee has a professional set up the corporation then this is usually done as part of the process.  

The licensee is now ready to have the licensee reissued by the Florida Department of Business and Professional Regulation in the name of the corporate entity, which must be the legal name with the proper entity designation (Jane Doe, PA) and not as a trade name (Team Jane Doe, PA). There is a small fee attached and the broker may not pay the licensee/corporation in the corporate name until the license has been reissued as such.  A new IRS W-9 form is created and the process is now complete from a legal standpoint.

In order to take maximum advantage of the new corporate arrangement, the licensee should have a business bank account created.  The bank will require the Articles of Incorporation and IRS tax identification number in order to open the account and request a credit or debit card strictly for business purposes.  The licensee is now open for business as a business.  Separating business from personal expenses is easily accomplished this way and in order to track the business income and expenses Quckbooks is an excellent banking and accounting tool. 

Now that the licensee is a business entity, business cards, signs and advertising are required to reflect the new corporate name.  Real Estate licensees are one of the only professionals allowed to avail themselves of the benefit and will find that their credibility is enhanced in the public eye by their new status.  

Forming the corporate structure is just the beginning of the process.  Expert tax advise is strongly urged to ensure that all the documentation is correctly prepared and that the new arrangement is utilized properly.  The brokerage will be paying the corporation, and the corporation will be the employer of the individual.  Understanding the filing of quarterly taxes, ongoing reporting requirements and other tax benefits and consequences make it advantageous to find a qualified accounting professional a part a licensee/corporation’s business expense. 

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