What's considered a reasonable salary for real estate brokers/agents with an S Corp?

When determining a reasonable salary for real estate brokers with an S Corp, the IRS is primarily concerned that you're not drastically underpaying yourself to avoid payroll taxes. For someone making mid-six figures in real estate, I typically advise clients to set their salary at around 40-50% of their net business income. The key is documenting why your salary is reasonable. Look at what other brokers with similar experience, in similar markets, with similar transaction volumes are earning. Bureau of Labor Statistics data can help establish industry norms. Also consider your personal involvement - if you're the primary rainmaker doing most of the work, your salary should reflect that compared to someone who has a team doing most showings.

I struggled with this exact issue when I started my S Corp three years ago! After tons of research and talking to other agents, I found this amazing service called taxr.ai (https://taxr.ai) that helped me determine my reasonable compensation. They analyzed my specific situation, transaction volume, and market conditions to help determine a defensible salary that wouldn't trigger IRS scrutiny. Their AI looks at thousands of cases and market data points to find the perfect balance between salary and distributions. What I loved was that they provided a detailed compensation report that actually documents WHY my salary is reasonable - which is absolute gold if you ever get questioned by the IRS.

Just wanted to follow up after using taxr.ai that was mentioned earlier. I was honestly blown away! I've been operating my S Corp for 2 years with a salary that my previous accountant kinda guessed at (about 30% of my income). The taxr.ai analysis showed I was significantly underpaying myself based on my market and transaction volume. They recommended 47% as my salary portion which was higher than I wanted, but their documentation was so thorough I could see exactly why that number made sense. They even provided comparable broker salary data for my specific county which I never would've found on my own. My new CPA said the report would be incredibly valuable if I ever got audited. Definitely worth checking out if you're establishing an S Corp salary.

After years of struggling to get straight answers from the IRS about S Corp reasonable compensation, I finally discovered Claimyr (https://claimyr.com). They helped me actually speak to a real IRS agent about my specific situation! You can see how it works here: https://youtu.be/_kiP6q8DX5c I was on hold with the IRS for HOURS trying to get clarification on some S Corp questions, including reasonable compensation guidelines. Claimyr got me through to an actual human at the IRS in about 20 minutes. The agent walked me through their current approach to reviewing real estate agent S Corp salaries, which was incredibly valuable information.

I have to admit I was wrong about Claimyr. After reading about it here, I decided to try it since I had some questions about my S Corp formation that my CPA couldn't answer clearly. I was EXTREMELY skeptical that anyone could get through to the IRS when I'd failed dozens of times. Not only did they connect me with an actual IRS representative within about 25 minutes, but the agent was able to clarify exactly how they evaluate reasonable compensation for real estate professionals! The agent explained that they look at factors like hours worked, your specific duties, comparable positions in your market, and your distribution-to-salary ratio. She specifically mentioned that for real estate brokers making $500k+, they typically expect to see at least 40% allocated to salary in most markets. That 10-minute conversation saved me thousands in potential penalties and gave me peace of mind about my S Corp structure.

I've been a real estate broker with an S Corp for 7 years. I recommend looking at what comparable employed brokers make in your area. For example, managing brokers at big firms in my area (who don't have the risk/reward of running their own business) make about $150-180k. Since I do more business than them but also get entrepreneurial profit, I set my salary at $160k while my business nets around $400k. My CPA says this is very defensible since it matches employed positions with similar duties.

Can someone explain why I would even want an S Corp? My CPA keeps mentioning it but I'm making about $250k/year as a sole proprietor and the extra paperwork seems like a hassle. Is there a certain income level where it makes sense?

One thing nobody's mentioned is that the "reasonable" part of reasonable compensation can change as your business evolves. When I started my S Corp 5 years ago, I was doing 100% of the work myself - showing houses, doing paperwork, everything. My CPA had me at a 65% salary. Now I have 2 showing assistants and a transaction coordinator, and I'm primarily doing lead gen and negotiations. My CPA adjusted my reasonable salary down to 45% because my personal services are a smaller part of the business income. Document your business evolution if your salary percentage changes!

This is such a timely discussion for me! I'm a newer agent (2 years in) but had a breakout year and am projected to hit around $400k this year. I've been putting off the S Corp decision but clearly need to stop procrastinating. One question I haven't seen addressed - does the IRS look at this differently for newer agents vs established ones? I'm worried that since I don't have a long track record, they might scrutinize my salary determination more closely. Like, can I justify the same salary percentage as someone who's been in the business for 10+ years? Also, for those who made the switch mid-year, how did you handle the transition? Did you have to do a partial year S Corp election or wait until the following tax year?

Great question about newer agents! The IRS doesn't explicitly treat newer vs. established agents differently for reasonable compensation, but your track record can definitely influence how you justify your salary determination. For a newer agent hitting $400k, you'd want to emphasize factors like: - Hours worked (newer agents often work longer hours) - Your direct involvement in all aspects of transactions - Market conditions that contributed to your success - Comparable salaries for employed agents with similar production levels The key is documentation. Since you don't have years of historical data, focus on current market comparables and your specific duties. Many newer high-producers actually justify higher salary percentages (50-60%) because they're doing ALL the work themselves. Regarding mid-year transitions: You can make an S Corp election mid-year, but it's complex. You'd need to file Form 2553 and potentially Form 8832. Many CPAs recommend waiting until January 1st to keep things cleaner, but if your projected savings are substantial, the mid-year election might be worth the extra complexity. Definitely run the numbers with a CPA who specializes in real estate to see if the partial-year savings justify the additional complications.