Mark S. Bounds Realty Partners, Inc.
Commercial/Industrial Real Estate
Appraisals & Consulting
Asset & Property Management
Providing our clients with superior
service, honest advice and project
success since 1986
Mark S. Bounds, CCIM, SIOR
Illinois CPA Bonnie Ansburg Marshall
of Ansburg & Co. in Naperville, Ill.
"As a commercial real estate broker, you
are usually considered an independent
contractor and therefore self-employed.
As such you are qualified to take a myriad
of expenses including but perhaps not
limited to office rent, office supplies,
advertising and promotions, travel and
entertainment, license and professional
education expenses, business automobile
expenses, telephone, and dues. By
forming this corporation (or limited
liability company) so long as you are the
sole owner (i.e. shareholder or member),
you are allowed to deduct 100 percent
of these expenses to reduce your taxable
income. This is a considerable advantage
compared to those expenses you could
deduct as an employee."
Further, employees are required to
report expenses on Form 2106, which is
subsequently included on Schedule A.
However, your Form 2106 unreimbursed
employee business expenses are only
deducted to the extent that these expenses
exceed 2 percent of your adjusted gross
income. Amounts used as a deduction on
Form 2106 may be further limited by the
Alternative Minimum Tax provision.
Conversely, corporate expenses are 100
percent deductible from your income
without these limits being imposed.
For further information about what
type of expenses are allowable, you can
and click on the Small Business & Self-Employed Center.
Working within the applicable guidelines,
tax reduction can be substantial.
The costs of formation and annual
fees of the corporation or LLC are
also deductible; but remember that the
licensee must be the sole shareholder or
sole member of the LLC. The licensee
still performs services in his or her own
name (i.e. this section is no substitute for
the firm doing business as a corporation
or LLC, and is no substitute for errors
and omissions insurance). However,
where those business expenses are taken
“above the line” by the corporation, tax
liability can be reduced.
I have not surveyed other states’ real
estate license acts for similar provisions,
so presently this particular plan may
benefit only IL real estate licensees.
There is no reason, however, not to seek
a change in other states’ license acts.
Reminder: this article is intended to offer
new possibilities, but shall not be deemed
personal income tax advice. The reader
is always advised to consult his or her
own tax advisors to determine whether
such a corporation or LLC works best
for the individual taxpayer.