reasonable compensation for real estate agents

Avoid Reasonable Compensation Pitfalls and REALTORS® Avoid Penalties & Interest

S corporations can save their owners a tremendous amount of tax.  Often this tax savings exceeds JarusRE’s entire annual fee!  As you might imagine the IRS is on the prowl looking out for abuses in this area as the potential dollar savings are substantial.

S corporations allow real estate agents to be compensated for services rendered through payroll (aka W2 income) while the owner may also receive dividends which are NOT taxed as self-employment income.  Tax planning is critical in this area and the process is tricky.

If you set your salary too low you will run a high risk of IRS examination.  The result can be payment of unpaid employment taxes and also hefty penalties and interest.

If you set your salary too high the situation can be even worse!  The hard working REALTOR®, an employee-shareholder, will be overpaying on taxes in excessive amounts.  Over the course of your business’ life the overpayments of tax (and lost investment opportunities) can cost you hundreds of thousands of dollars.

Monthly clients at JarusRE receive an ANNUAL review of reasonable compensation.  Our team of CPA’s is constantly gathering support from every level of legislative and administrative tax authority including:

  • Tax Court Cases
  • Internal Revenue Code
  • Treasury Regulations
  • IRS Private Letter Rulings
  • Tax Court Memorandum Decisions
  • Revenue Rulings
  • Revenue Proclamations
  • And More!

We are experts in reasonable compensation for real estate agents and provide each monthly client with an annual review taking into consideration a number of factors such as

  • Services Performed
  • Operating as Agent or Broker
  • Past Performance
  • Current Performance
  • Business Location: City, County and State
  • Types of Property Sold
  • And More!

The bottom line is that the S corporation creates some incredible tax planning opportunities but there are many traps one can fall into when going it alone.  When facing an IRS examination it is far better to have support from state agencies, federal agencies, trade associations and more.  When you can show there was a well thought out analysis for your level of compensation you are more likely to fair well and potentially exit the examination without any adjustments.

NOTE: IRS audit support is also INCLUDED in our monthly fee.  Should you ever be examined for a tax year in which JarusRE had you covered as a package client our CPA’s will handle all communications with the IRS or your state agency.  We will clearly articulate the methodology used to determine “reasonable compensation” for you as an employee and will show them how it is consistent with their guidelines.

Click edit button to change this text.