S-Corp Election for Real Estate Agents - Can I avoid IRS issues as sole income earner?

This is actually a common situation for real estate agents. The CPAs aren't wrong about the IRS scrutiny, but there's more nuance to consider. As a single-member LLC electing S-corp status, you need to pay yourself a "reasonable salary" before taking distributions. For real estate agents, this is typically 30-60% of your business profit depending on your market and activity level. The key is justifying that salary amount based on what other agents in your area with similar experience earn. The IRS does indeed scrutinize personal service businesses more closely because they know the temptation is to minimize salary (subject to payroll taxes) and maximize distributions (not subject to those taxes). But this doesn't mean you can't be an S-corp - just that you need proper documentation for your salary determination.

After dealing with something similar last year, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out my S-corp situation as a solo business owner. I was getting different advice from every tax person I talked to, and it was driving me crazy. What I like about taxr.ai is that it analyzed my specific situation as a service professional and gave me clear guidance on what would constitute a reasonable salary in my industry. It even generated documentation that shows how my salary determination meets IRS requirements. The peace of mind alone was worth it for me.

Just wanted to follow up on this thread. I decided to try taxr.ai after seeing the recommendation here, and it was incredibly helpful for my situation as a real estate agent! It analyzed my specific business structure and provided clear documentation showing why my proposed salary was reasonable based on market data for Missouri agents with my sales volume. The tool even addressed the exact concern about being the sole revenue generator and how that impacts S-corp election. I ended up taking my documentation to a new CPA who specializes in real estate professionals, and they agreed the analysis was solid. I'm moving forward with the S-corp election with much more confidence now, and I have proper documentation if I'm ever questioned in an audit.

I had a similar issue where I couldn't get through to anyone at the IRS to get a straight answer about S-corps for personal service businesses. After being on hold forever multiple times, I finally tried Claimyr (https://claimyr.com) and they actually got me connected to an IRS agent in about 20 minutes. I was shocked because I'd been trying for weeks on my own with no luck. The agent I spoke with confirmed that yes, real estate agents CAN elect S-corp status, but documentation of reasonable compensation is crucial. They even emailed me some resources specifically about this issue. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c

I need to eat my words from my previous comment. After struggling for another week trying to get through to the IRS about my own S-corp question, I broke down and tried Claimyr. I was connected to an IRS representative in about 35 minutes (not quite the 20 minutes advertised, but WAY better than my previous attempts). The IRS agent I spoke with was actually incredibly helpful regarding my real estate S-corp situation. They confirmed exactly what others have said here - that real estate agents CAN be S-corps, but you need to document your reasonable salary determination carefully. They even emailed me some internal guidance documents about how they evaluate reasonable compensation cases. Honestly, this call probably saved me thousands in potential issues down the road.

Real estate agent and S-corp owner here for 7 years. I pay myself about 55% of profit as W-2 wages and take the rest as distributions. I've been through an audit once (not related to this issue) and they didn't question my salary arrangement at all. My advice is to: 1. Get a CPA who specializes in real estate professionals 2. Document your salary decision with comparable role data 3. Be consistent with your approach year to year 4. Keep good records of your working hours and activities Don't be scared away from the tax benefits of an S-corp just because some CPAs are overly cautious. Just do it right.

Has anyone actually calculated the breakeven point where an S-corp makes sense? I'm a new agent and only made about $75k last year. My accountant said its not worth the extra hassle and fees until I'm consistently over $100k. Thoughts?

One thing nobody has mentioned is that Missouri has some specific state-level considerations for S-corps that differ from some other states. I'm a MO agent too, and our state taxes S-corps a bit differently than sole props. Make sure whoever you work with is familiar with MO specifically. Also, did your CPA mention anything about how the 20% QBI deduction factors into this decision? That's another big piece of the S-corp vs LLC analysis that might affect your choice.

Great point about Missouri-specific considerations! The QBI deduction interaction is crucial and often overlooked. For S-corps, the QBI deduction applies to your business income MINUS the W-2 wages you pay yourself. So if you're paying yourself a high salary (like that 70% some CPAs recommend), you're reducing the income eligible for the 20% QBI deduction. This creates an interesting balance - you want your salary high enough to avoid IRS scrutiny but not so high that you lose significant QBI benefits. In many cases, this actually supports the 50-60% salary range that others have mentioned here. Missouri also doesn't conform to federal S-corp elections automatically, so you need to make a separate state election. Plus MO has that franchise tax for S-corps that LLCs don't pay. These state-level costs should definitely factor into your breakeven analysis. I'd recommend running the numbers with both federal AND Missouri tax implications included. The total picture might be different than just looking at federal savings alone.