Beyond the Commission Check: Tax Planning for Real Estate Agents
Jen and Maria sit two desks apart at the same Missouri brokerage. This year, each of them netted $500,000.
Jen paid $188,071 in taxes.
Maria paid $124,955.
That's a $63,116 difference, in one year, between two agents who sold about the same and live in the same state. The only real difference is that Maria planned and Jen didn't.
As financial advisors for business owners, we help real estate agents set up their business so they keep more of what they earn.
Meet Jen and Maria
Both agents are single and live in Missouri. Each has $500,000 of net profit.
Jen does no planning. Her brokerage sends a 1099 in her name. She files a Schedule C, pays what the return says, and gets back to work. No retirement plan. No elections. No strategy.
Maria planned all of it. She set up an LLC taxed as an S corporation, pays herself a reasonable salary, maxes out what her plan allows in a Solo 401(k), elects Missouri's PTET, funds an HSA, and runs an accountable plan for her home office and phone.
Here's how each move adds up.
Move 1: The S Corp
Worth to Maria: about $36,200 this year
This one move does two big jobs at once. It cuts Maria's payroll tax, and it unlocks her QBI deduction.
Payroll tax
When you're self-employed, you pay self-employment tax. That's Social Security and Medicare, and you pay both the "employee" half and the "employer" half yourself.
For 2026, Social Security tax is 12.4% on your first $184,500 of self-employment earnings. Medicare is 2.9% on everything, with no cap. Once a single filer passes $200,000, there's an extra 0.9% Medicare tax on top.
Here's Jen's bill on $500,000:
Self-employment tax: $36,269
Additional Medicare tax: $2,356
Total: $38,625
Maria's S corp works differently. She pays herself a $125,000 salary. Payroll tax only hits the salary. The rest of the profit comes to her as a distribution, and distributions don't carry Social Security or Medicare tax.
Payroll tax on Maria's salary, counting both halves, is $19,125. That's about $19,500 less than Jen.
Want to go deeper on picking the right business structure? Watch our video on business structure here.
The QBI deduction
The Qualified Business Income (QBI) deduction lets business owners deduct up to 20% of their business profit. The One Big Beautiful Bill Act, signed July 4, 2025, made it permanent.
Some professions lose QBI at high incomes. Doctors, lawyers, accountants, and financial advisors are on that list. Real estate agents and brokers are not. The IRS regulations carve you out by name.
But there's a trap door. Once your taxable income passes a certain point, your QBI deduction is capped at 50% of the W-2 wages your business pays. For single filers in 2026, that cap phases in between $201,750 and $276,750 of taxable income.
Jen's taxable income is about $454,000. She's way past the line. And as a sole proprietor with no payroll, she pays zero W-2 wages. Half of zero is zero.
Jen's QBI deduction: $0. She didn't forget to claim it. At her income, with no payroll, the rules give her nothing.
Maria's company pays her a $125,000 W-2 salary. Half of that is $62,500, which sits right around 20% of her business profit. So the cap barely touches her.
Maria's QBI deduction: $62,201. In the 35% bracket, that's worth more than $21,000 in federal tax.
The same salary that cuts Maria's payroll tax is what unlocks her QBI. That's why the S corp is worth so much more to a single agent at this income than people expect.
The catch: the salary has to be real
You can't pay yourself $30,000 and take $470,000 as distributions. Your salary has to be reasonable, meaning close to what you'd have to pay someone else to do your job.
There's a well-known case on this from the 8th Circuit, which covers Missouri. An Iowa CPA named David Watson ran his practice as an S corp and paid himself a $24,000 salary while taking far more out as distributions. The IRS said about $91,000 was reasonable. The court sided with the IRS.
Maria's $125,000 is an example. Your number should be backed by real data on what agents and sales managers earn in your market. Write down how you picked it. If the IRS ever asks, you want a file ready.
Move 2: The Solo 401(k)
Worth to Maria: about $21,200 this year.
If you're self-employed with no full-time employees, a Solo 401(k) is usually the strongest retirement plan you can have. It has two parts:
Employee deferral: up to $24,500 in 2026. Age 50 or older, add $8,000. Age 60 to 63, add $11,250 instead.
Employer contribution: up to 25% of your W-2 salary in an S corp.
The total can't go over $72,000 in 2026, plus any catch-up.
Maria puts in $24,500 plus 25% of her $125,000 salary. That's $55,750, all deductible because she uses the traditional side.
Jen put in $0.
Three things to know:
In an S corp, your deferral has to come out of a paycheck. December 31 is the real deadline for that piece. You can't decide in April.
Age 50+ with a big salary? Starting in 2026, if your prior-year FICA wages were over $150,000, your catch-up contributions have to go in as Roth.
Hiring changes things. Add an employee who qualifies for the plan, and a Solo 401(k) may no longer fit.
Move 3: PTET
Worth to Maria: about $2,200 this year
Missouri's SALT Parity Act, better known as PTET (pass-through entity tax), lets an S corp elect to pay Missouri income tax at the company level. The rate is the top individual rate, which is 4.7% for 2026.
Tax the company pays is deducted before the profit reaches your personal return. You get a Missouri credit for your share, so you don't pay the state twice.
Maria's company pays about $15,300 through PTET.
At $500,000, Maria isn't hitting the federal SALT cap, which is $40,400 in 2026 and only starts shrinking once income passes $505,000. So PTET helps her in a quieter way. Without it, her state and property taxes add up to about $25,000 of itemized deductions. With PTET, most of her state tax is deducted at the company level. What's left is small enough that she takes the $16,100 standard deduction on top.
PTET gets much more powerful once income passes about $606,000, when the SALT cap drops back to $10,000.
You have to elect it every year on Form MO-PTE. Once you elect for a year, you can't undo it.
Move 4: The HSA
Worth to Maria: about $1,750 this year.
Maria carries a high-deductible health plan, which lets her fund a Health Savings Account. For 2026, the limit is $4,400 for self-only coverage.
The money goes in tax-deductible, grows tax-free, and comes out tax-free for medical costs. That triple benefit is rare in the tax code.
Most agents treat the HSA like a checking account for doctor bills. Maria invests hers and pays small medical bills out of pocket, so the account keeps growing.
Move 5: The Accountable Plan
Worth to Maria: about $1,700 this year.
Maria works from a home office and runs her business off her cell phone. Her S corp has a written accountable plan, so the company reimburses her for the business share of those costs. In our example that's $4,800 a year: $3,600 for the home office and $1,200 for her phone.
The company deducts it. Maria doesn't pay tax on the reimbursement. She just needs receipts and a written plan.
The Scoreboard
Jen (No Planning) | Maria (Full Planning) | |
Federal income tax | $127,717 | $83,851 |
Payroll / self-employment tax | $38,625 | $19,125 |
Missouri income tax | $21,729 | $18,937 |
Extra S corp costs (payroll, tax prep) | $0 | $3,000 |
Total tax and costs | $188,071 | $124,955 |
QBI deduction | $0 | $62,201 |
Saved in a 401(k) | $0 | $55,750 |
Saved in an HSA | $0 | $4,400 |
Maria keeps about $63,000 more this year. She also ends the year with $60,150 set aside in tax-advantaged accounts. Jen has nothing set aside.
If those numbers repeat for ten years, Maria's tax savings pass $630,000. That's before counting what her 401(k) and HSA grow into.
The dollar value of each move depends on the order you stack them in. We added them in the order shown above.
Even More Maria Could Do
These weren't in our math, but they belong on your list.
Your car. For 2026, the IRS mileage rate is 72.5 cents a mile for January through June and 76 cents a mile from July 1 on. The IRS raised it mid-year because of gas prices, so split your log at July 1. An SUV or truck rated over 6,000 pounds gross vehicle weight can qualify for 100% bonus depreciation in the first year if you bought it after January 19, 2025 and use it for business more than half the time. Drop below 50% business use later and some of that deduction comes back. Keep a mileage log either way.
Health insurance through the S corp. If you own more than 2% of an S corp, the company can pay your health premiums. They show up on your W-2 but aren't hit with Social Security or Medicare tax, and you deduct them on your personal return.
Hiring your kids. If you have children who do real work, you can pay them a fair wage. A child can earn up to $16,100 in 2026 with no federal income tax, and that income lets them fund a Roth IRA. In an S corp, their wages do owe Social Security and Medicare tax.
Estimated taxes. If your income last year was over $150,000, pay at least 110% of last year's total tax during this year to avoid penalties. S corp owners have an extra tool: federal tax withheld from a paycheck counts as if it were paid evenly all year, even if most of it comes out in December.
A cash balance plan. For agents in their 50s and 60s with steady income, a cash balance plan can sit next to a 401(k) and allow six-figure deductions each year. It comes with a real funding commitment.
Your Next Step
If you are a real estate agent or in a similar sales role and this sounds like you. Schedule a call with our team, and we'll show you which of these moves fit your family.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I receive frequently about this topic.
Are real estate agents a "specified service" business for QBI?
No. The IRS regulations specifically say brokerage services do not include real estate agents and brokers. Agents can keep the QBI deduction at high incomes as long as the W-2 wage limit is met.
What salary should I pay myself?
It should match what you'd pay someone else to do your work, and you should document how you got there. Going too low is the fastest way to invite an IRS problem.
Isn't an LLC enough on its own?
No. Without the S corp election, you're taxed like Jen.
How do you work with other members of my team?
We believe in the power of the team. For most of our clients, their team consists of Moment Private Wealth, an accountant, an attorney, a banker, and an insurance specialist. We help our clients build out their team of individuals or work with existing partners that clients have. Our goal is to ensure every family has a team of experts to protect their interests.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
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