QUESTION
What is the best ownership structure for an independent contractor real estate agent?
Asked on May 30th, 2013 on Taxation - California
More details to this question:
It is my understanding that to do business as a real estate agent, I have two options in California which is a Professional S Corporation, or a sole proprietorship. Can I form an LLC if i'm not conducting real estate activities under the LLC, but my income is running through the LLC somehow? My Reasons for wanting an LLC are as follows: 1. I want business credit, and the ability to put my business accounts out of my personal name. 2. I want tax advantages such as writing off my health insurance. The limited liability is of less importance to me and I'm not looking for it to cover errors and omissions, but it would be nice to be protected should a client trip out of my car, slip and fall during a showing etc. I understand this may not be possible. What is the best ownership structure for me?
1 ANSWER
Robert Barnhill III
If you are the sole owner of the business, you will be taxed as a sole proprietor (schedule C) whether you do business as an LLC or as a sole proprietor. This is referred to as the disregarded entity provisions. As a sole proprietor, you can deduct your health insurance premiums on page 1 of form 1040, but you will not be able to deduct them on schedule C. This applies whether you do business as an LLC or as a sole proprietor. If you want to deduct health insurance premiums against business income the only way to do that is to be a C corporation. If you are the only employee, then anything that happens will involve you, so doing business as an LLC will afford you no liability protection. Only if you plan on having other people working for you will operating as an LLC give you a liability benefit. If this is a new business and you will be the only owner and employee, I suggest you start off as a sole proprietor and if the business is successful change the structure at a later date. Even if you operate as a sole proprietor, you will still need a separate checking account in the name of the business. You do not have to operate the business under your name, but be sure to file an assumed name certificate if you decide to use a business name other than your own. I do not practice in California, so understand I can not assist you in the nuances of California law.
Answered on May 30th, 2013 at 3:19 PM