Can Real Estate Commissions Be Paid to an LLC?

Real estate agents often consider directing their commission payments to a Limited Liability Company (LLC). This business structure can be a strategic move for managing a real estate business, but it requires navigating state-specific regulations and understanding the associated financial implications. For many agents, this represents a shift from operating as an individual to a more formal business entity.

State Licensing and Brokerage Requirements

The ability for a real estate agent to have commissions paid to an LLC is governed by state law, which varies significantly across the country. State real estate commissions or licensing boards establish the rules for who can legally receive compensation for real estate activities. These rules are designed to protect consumers by ensuring that only licensed and qualified individuals or entities are involved in transactions.

States follow one of two models regarding payments to an agent’s LLC. In some jurisdictions, the LLC itself must obtain a real estate or brokerage license. This process requires designating a licensed broker, who may be the agent themselves if they hold a broker’s license, to be responsible for the LLC’s activities.

A different approach is taken by other states, which permit a licensed agent to have their commissions paid to an unlicensed LLC. This is allowed if the LLC is wholly owned by the licensed agent and does not engage in any real estate activities itself. Agents should verify the specific requirements in their state by consulting the state’s real estate commission.

Beyond state law, the agent’s managing broker plays a role in this arrangement. The independent contractor agreement between the agent and their brokerage dictates how commissions are paid. For an LLC to receive the funds, the brokerage must agree to this structure and amend the agreement to name the LLC as the payment recipient.

Tax and Liability Implications

Operating as an LLC introduces financial and legal considerations centered on taxation and liability protection. By default, a single-member LLC is a “disregarded entity” by the Internal Revenue Service (IRS). This means the LLC’s income and expenses are reported on the owner’s personal tax return using Schedule C (Form 1040), with all net profit subject to self-employment tax.

This tax is 15.3% and is composed of two parts: a 12.4% Social Security tax that applies to the first $176,100 of earnings in 2025, and a 2.9% Medicare tax that applies to all earnings. A 0.9% Additional Medicare Tax may also apply to earnings that exceed certain thresholds, such as $200,000 for single filers.

An LLC can elect to be taxed as an S Corporation, which can lead to savings on self-employment taxes. With an S Corp election, the agent must pay themselves a “reasonable salary” subject to payroll taxes (FICA). Any remaining profit can be taken as a distribution, which is not subject to self-employment taxes. For example, if an agent’s LLC earns $150,000 and they take a $60,000 salary, only the salary is subject to payroll taxes.

The “corporate veil” of an LLC provides liability protection, shielding the agent’s personal assets from business debts. However, this protection does not cover an agent’s own professional negligence or malpractice. For this reason, errors and omissions (E&O) insurance remains a risk management tool for all real estate professionals, regardless of their business structure.

Steps to Set Up Commission Payments to Your LLC

The process of structuring your business to receive commissions through an LLC involves several actions.

• Formally establish the Limited Liability Company by filing Articles of Organization with the appropriate state agency. This filing officially creates the legal entity and requires providing a name for the LLC, which in some states must include the agent’s licensed name.
• Obtain an Employer Identification Number (EIN) from the IRS. An EIN is a federal tax ID for the business, similar to a Social Security number for an individual, and is required for opening a business bank account and filing federal tax returns.
• Open a dedicated business bank account under the LLC’s name. This step is important for maintaining the liability protection of the LLC by keeping business finances separate from personal finances. All commission payments from the brokerage should be deposited directly into this account, and all business-related expenses should be paid from it.
• If your state’s regulations require the LLC itself to be licensed, you must complete and submit the necessary application to the state real estate commission. This may involve a separate fee and proof that a licensed broker is designated as the responsible party for the entity.
• Coordinate with your managing broker to execute a new or amended independent contractor agreement. This contract must clearly state that the brokerage will pay all earned commissions directly to the LLC. The broker will also need to issue a Form W-9 in the LLC’s name for proper tax reporting.