The choice of entity structure for commercial real estate brokers is an important one, as it determines factors such as the business’s taxability, liability protection, administrative complexity, and level of flexibility. In this article, we’ll highlight three entity structure options we recommend for commercial real estate brokers, along with the advantages and disadvantages of each.
The following entity types are preferable as they are all taxed at the owners’ individual rates (meaning the business itself doesn’t pay a separate federal income tax) and all have asset protection.
Single-Member LLC
A single-member LLC (SMLLC) is a limited liability company with a single owner. This business structure offers the liability protection of a corporation—shielding the owner’s personal assets from business debts and liabilities—while providing the tax benefits of a sole proprietorship or partnership, such as pass-through taxation and simpler tax filing. SMLLCs involve less administrative burden, as owners report the business’s taxes on their personal tax return. However, SMLLCs are subject to self-employment tax and are not eligible for the state PTET deduction.
Pros
- Pass-through taxation—avoids double taxation from both federal and individual income tax
- Personal assets are protected
- Less administrative burden—taxes are reported on the owner’s personal tax return
Cons
- Subject to 15.3% self-employment tax (equivalent to FICA tax): combined 12.4% Social Security tax (capped at $176,100 for 2025) and 2.9% Medicare tax (no cap)
- Not eligible for state Pass-Through Entity Tax (PTET) deduction
S Corporation
An S corporation can have a single owner or multiple owners. Like a C corporation, an S corporation offers limited liability protection—but unlike a C corporation, an S corp is classified as a pass-through entity, preventing double taxation. Owners of S corps who are also employees are required to pay themselves a “reasonable salary,” which is subject to FICA taxes. However, the remaining profits can be distributed to the owner(s) as dividends, which are not subject to FICA taxes. By strategically dividing business income between salary and distributions, owners of S corps are able to limit their FICA exposure. S corps can also elect to participate in the state Pass-Through Entity Tax as a way of bypassing the State and Local Tax (SALT) deduction cap and reducing tax liability. However, owners of S corps may face higher administrative costs and burdens due to factors such as compliance requirements and the need to file separate corporate and individual tax returns. S corps must also adhere to more rigid rules. For example, 50/50 shareholders are required to split distributions equally to maintain S corp status. A shareholder can also only deduct losses up to the amount of their basis in the S corp (basis limitation rule).
Pros
- Pass-through taxation—avoids double taxation from both federal and individual income tax
- Personal assets are protected
- Limited exposure to FICA taxes
- Can elect to participate in PTET
Cons
- Higher administrative costs and burden
- Subject to more rigid rules
Multi-Member LLC
A multi-member LLC (MMLLC) is a business structure with more than one owner that provides the added benefit of limited liability protection. Like SMLLCs and S corps, multi-member LLCs enjoy pass-through taxation. They can elect to participate in PTET. MMLLCs offer increased flexibility regarding income and loss allocation among members (unlike S corps, in which distributions must be divided in proportion to ownership interests). MMLLCs are, however, subject to a 15.3% self-employment tax and face the additional administrative cost and burden associated with filing separate tax returns. The flexibility of MMLLCs can also present complexities such as the need for operating agreements, more complicated tax returns, and the potential for disagreements between members.
Pros
- Pass-through taxation—avoids double taxation from both federal and individual income tax
- Personal assets are protected
- Flexibility in income/loss allocations
- Can participate in PTET
Cons
- Higher administrative costs and burden
- Subject to 15.3% self-employment tax
- Increased flexibility can create complexities
Reach Out for Further Guidance
For many real estate brokers, the best structure choice is an LLC, which can be taxed as any of the above structures, offering greater flexibility. As you can see, each of these entity structures comes with its own tax, legal, and administrative considerations. Our accounting and tax professionals at RBT CPAs can help you decide which entity structure works best for your tax planning needs, in coordination with your legal counsel. Reach out to our real estate accounting team for individualized tax guidance. As always, RBT CPAs is here to support all of your accounting, tax, audit, and advisory needs. Contact us today to make an appointment.