New TREC ruling will help us save money on our taxes!

TREC recently announced a new exception to a long-standing rule on how Texas Real Estate Agents receive commissions, and it's a game-changer!

In a prior life as a tax advisor, I worked with a ton of real estate agents making sure their entities were structured in a way that gave them the most tax benefits. Well, one of the main issues we were constantly battling was whether their broker could pay their commission directly to the agent's 100% owned LLC, instead of paying it to them personally under their personal SSN. And if they wouldn't, we could still employ the same tax strategies for their LLC, we just had to jump through a few more hoops to get the desired result.

This typically involved a highly convoluted (yet perfectly legal) process of depositing their commissions into their personal bank account, then transferring the money to their business account to pay all of their business expenses so we can properly write everything off, including lease payments for the business use of their car and home office, paying themself a salary (which is where the majority of the tax savings comes from), etc. And then, to avoid having to report everything on a schedule C (which is the largest target for IRS audits by probably 100x), we would have to report the amount from their personal 1099 as an "in and out" Schedule C so the amounts would match what was reported to the IRS under their social security number, then properly report it on the business tax return. I'm telling you, it has been a huge pain in the derriere! Until now...

Well, starting 1/1/2024, the Texas Real Estate Commission is going to make things ONE THOUSAND TIMES easier for us agents to maximize our tax savings by allowing brokers to pay our commissions directly to our LLC or S-Corp, as long as you register your entity with TREC, and as long as you're at least a 51% owner of the entity. Oh, and as long as this entity is setup for the sole purpose of receiving real estate commissions. I mean, TREC is still a government entity, so of course they're going to have more stipulations and exceptions than you can shake a stick at! So, you're not allowed to use it for other brokerage activities, or for the rental property you own, or for the photography side hustle you have going on.

Up until now, the only way a broker could pay commissions to a business entity was if the entity itself had a broker's license with TREC. Well, that ruled out the vast majority of agents, since obtaining a broker's license in Texas requires at least 4 years of active experience as an agent, meeting TREC's standards for honesty, trustworthiness, and integrity (a tall order for some, JK!??),? and passing the broker exam. But now, hallelujah, you can skip all of that (except for the honesty and integrity part, that's still required) and setup a new LLC or easily restructure your existing one so that it can start legally receiving commissions on your behalf and get all those tax breaks you've been dreaming of!

I spoke with a TREC representative over the phone today who said they will most likely release instructions for registering your entity within the next month or so (as soon as they figure it out themselves), so I'll share that info here once they do. In the meantime, let me know if you have any questions. I'm always glad to help!

#selfemploymenttaxes #realtortaxes #independentcontractor #taxplanning #commercialbroker #realestateagentsoftexas

Source: https://www.trec.texas.gov/article/rule-changes-and-proposals-august-trec-meeting