Most commercial real estate brokers are independent contractors paid via 1099. When you’re an independent contractor you are technically a small business owner. Unfortunately, too many brokers do not think or function like a business.
In most states, brokers have the opportunity to form an entity and elect S Corporation tax treatment. There are many tax benefits to operating this way. However, maybe the biggest benefit is financial separation, better organization, and thinking like a business.
As an S Corporation, you will need to have separate bank accounts and accounting. You can and should already do this as an independent contractor without forming an entity, but it is not required so most brokers skip this.
It is overlooked because brokers are in a 100% commission environment and their focus is on their clients, prospecting, and the next big deal. They do not eagerly sign up for a new process just for the sake of better organization. They do eventually sign up for it because tax savings give immediate gratification.
Saving money immediately is rewarding. Rearranging your finances and income structure is not obviously rewarding. However, we would argue this might be the best step toward making more money. And making more money than the tax savings will provide. Why?
It’s a structure and a mindset that produces results. In an “eat what you kill” environment, structure is very important. Reducing stress improves focus. Structure enables better cash flow management which improves focus on your business and achieving goals. Increased cash flow as a result of better cash flow management provides motivation to prospect more, learn more, and increase your business.
Don’t think that an S Corporation structure only lowers your taxes. It also increases your likelihood of success. Success is defined as meeting your goals. If your goal is to make more money, taking more control of your financial path will help you achieve that goal.
So, consider forming an S Corporation and changing the way you think about your income.
