David Saks: Paying Commissions to Your LLC Versus Paying Commissions to You - A Tough Question

David Saks - Real Estate Broker - The Real Estate Mart of Tennessee, Inc. - 4040 North Watkins-Suite #4 - Memphis, Tennessee 38127 - Phone (901) 357-4663

Paying Commissions to Your LLC Versus Paying Commissions to You - A Tough Question


A question was asked about whether or not, as a licensed REALTOR, you could incorporate yourself and have the company where you hold your license pay your corporation any commissions you earn.

Is there an issue with the company paying commission to your corporation versus paying commission directly to you?

The answer, as given by the Tennessee Association of Realtors Legal and Ethics attorneys, is that an agent can only be paid by their broker.

 

An individual licensee that has "incorporated" or "LLC'ed" himself CANNOT be paid a commission through the company.

The individual holds the license, not the company.

The only time that a company can hold a license is if it is a firm license.

A company cannot be issued an individual license.

Furthermore, pursuant to Tenn. Code Ann. 62-13-302(a):

"It is unlawful for any licensed broker to employ or compensate any person who is not a licensed broker or a licensed affiliate broker for any of the acts regulated by this chapter. A licensed nonresident broker may pay a commission to a licensed broker or another state if such nonresident broker does not conduct in this state any of the negotiations for which a commission is paid."

In addition, Tenn. Code Ann. 62-13-312(b)(11) states that an agent can be disciplined for "Accepting a commission or any valuable consideration by an affiliate broker for the performance of any acts specified in this chapter, from any person, except the licensed real estate broker with whom the licensee is affiliated".

An agent can only be paid in the name on their license - whether it is a firm license or their individual license.

How does it work in your state ?




David Saks



Time&Temp Memphis

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Comment balloon 6 commentsDavid Saks • December 19 2011 07:19PM

Comments

David - in Florida there is a special designation, P.A. which stands for Professional Association, and it is widely used by Attorneys, Accountants, and some others, In Florida agents are allowed to choose doing business as PA, and their name is written like thhis: John Doe, P.A. For tax purposes it is a company and the broker can pay to this PA.

I do not use, it, and I do not have agents who  use it, so I may be somewhat off in my description, but I doubt that it would be by much

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) over 8 years ago

The Pa has meaning in your state, Jon.

According to Florida attorney Nick Spradlin :

"Those who are allowed to form professional associations may receive several tax benefits over operating as a sole proprietorship or partnership while at the same time avoid filing a Schedule C with their own IRS form 1040. Expenses that most businesses incur or needlessly avoid because of cost can create huge benefits and tax deductions.

Take for example, the escalating cost of health care which makes it necessary for people to carry health insurance. Sole proprietorships and partnerships currently may deduct only a portion of the health insurance costs from their taxes, which can be excessive to many or prevent obtaining insurance coverage. However, a professional association is able to fully deduct the cost of accident and health insurance plans for its employees and their families. This deduction may allow the cost of reimbursing employees for their uninsured medical expenses. Furthermore, a professional association may be able to deduct the cost of life and disability insurance.

Additionally, the tax deductions for accident and health insurance may be realized by forming a professional association. Moreover, a professional association may deduct up to 80% of the dividends, which it receives from a domestic corporation that is subject to taxation. This differs from a self-employed professional who owns dividend-producing stock which must include the entire amount of dividends in their gross income. Lastly, upon the sale of stock in a professional association, the gain realized would be taxed at a maximum rate of 28%, whereas a self-employed professional could be taxed at a rate as high as 39.6% on the sale of their interest in such a business. "

Posted by David Saks ((retired)) over 8 years ago

David -- it would also be interesting to see how RESPA would be applied to a "person" who is a "corporation".  That might create some other issues.

Posted by Steven Cook (No Longer Processing Mortgages.) over 8 years ago

The Consumer Financial Protection Bureau began administering and enforcing RESPA in July of this year, Steven, as I'm sure you already know.

By the way, I found a case that alleges a breach in a loan contract that I found interesting, Steven.

According to the summary, Plaintiffs allege the company breached the contract by ignoring its own underwriting policies in three ways: (1) The company didn't underwrite a Residence and Rental loan together, which skewed the debt-to-income analysis in favor of authorizing loans that would have otherwise exceeded the loan companies standards (50-54% debt-to-income ratio) if the loans had been underwritten together; (2) The loan company did not include the taxes and insurance in its debt-to income analysis, which would have further increased the debt-to-income ratio to nearly 70% of Plaintiffs’ stated income; and (3) the loan company failed to investigate the accuracy of Plaintiffs’ stated income, which would have demonstrated the loans were not affordable for Plaintiffs because their actual income ($3,850 per month) which was less than the “stated income” of $6,750.

Here's the link:

James vs Bridge Capital Corporation

Hope you're having a fine evening.

Posted by David Saks ((retired)) over 8 years ago

David - for some of us this is interesting reading.  What I found quite intriguing was the note: "SGH knew there was little benefit for Plaintiffs in the loans because Plaintiffs’ equity of more than $40,000 yielded only $19,000 in cash from the refinanced loans."   How could the defendent NOT recognize high costs for the loans in this situation?

Have a fantastic week!

Posted by Steven Cook (No Longer Processing Mortgages.) over 8 years ago

Yeah, that got me, Steven, along with the paragraph:

"Defendants admit Bridge made a number of false statements about the loans, including statements that Plaintiffs would save money with the loans and that there would be reserves for taxes and insurance. Plaintiffs admit they were aware before they executed the loan documents that the refinanced loans were less favorable to Plaintiffs than their prior mortgages; for example, the interest rate for the Rental was originally fixed at 5.95% and was refinanced to an adjustable rate mortgage of 10.95% with a balloon payment of $165,400 at maturity. In addition, the refinancing led to an increase in Plaintiffs’ monthly payments and cost them nearly $40,000 in fees while providing them with less than $20,000 in cash. The combined monthly payments on the two refinanced loans ultimately exceeded Plaintiffs’ monthly income."

That's what I call expensive money.

Posted by David Saks ((retired)) over 8 years ago

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