What Does PA Stand for in Real Estate?
If you feel that being an independent realtor is not enough then why not spread your wings? It’s time that you started your own P.A.
The abbreviation PA stands for “Professional Association, which allows you to run a corporation under an LLC or a P.A. Most real estate agents prefer to be the latter because this way, their corporation is taxed, which minimizes their self-employment taxes.
Progressing to a P.A can be a rewarding and smart career move. In order to become a licensed real estate agent, you first need to pass your state’s Salesperson exam. The general eligibility criteria for this is:
- You need to be 18 years old
- You must have completed your 75 hours of real estate education
- Pass a background check
- Be sponsored by a licensed broker
- Submit your Florida, Pennsylvania, or other state application required by the state’s real estate commission
Let’s take a look at these steps in detail:
Since you will be operating a Professional Association, the state wants to make sure that you can effectively run the P.A. Just like operating a business, a Professional Association will allow you to reap tax benefits, as well as other advantages, which we will explain later.
Getting your PA license
Get 75 hours of real estate education and complete it within 5 years. This will include a 30-hour fundamentals course, as well as a 45-hour practical course both of which are on real estate topics. If you have received a degree, with one course focusing on real estate, hold a current license in one state, and are seeking another one in a different state then you need to take another exam.
In order for your real estate license application to get approved, you need to get a score higher than 75%. The exam should be taken in front of a proctor, which you will have to arrange.
Once you are done with your degree, you need to pass the state’s real estate exam. There are plenty of institutes that provide this professional service. You will have to complete a test with 110 questions that will be divided into 2 portions. The first portion will cover national requirements and the second will cover state requirements.
In order to get your license, you need to be associated with a certified broker. It’s important that you look for someone that can be a mentor to you. When searching for one, do look into the following information:
- Is the broker reputed nationally or locally?
- Do their pick real estate agents based on some criteria?
- Are they familiar with the latest technology and know how to help the real estate agent in whatever way they can?
- What kind of training and education do they give to the real estate agents?
- What’s their commission structure?
- Are there any benefits to seeking this professional service?
- Does the broker give training and educational material?
Complete your license application by attaching the right documents to it. The application is submitted online and should be done within 3 years after you have passed your state’s real estate exam.
Types of real estate business entities
A real estate business that provides professional service offers you two benefits and those are: maximized deductions and minimized taxes.
Not many real estate agents are familiar with the P.A licensing process. For example, did you know that you can create a business without filing their 1040’s Schedule C? This is what makes P.A and Professional LLC (PL) so attractive. Ultimately, the type of business you want to operate is based on your company’s size.
To reduce your tax liabilities, deciding on what type of business you want is the first step. One thing that the law does not look on kindly and is a huge mistake on an agent’s part is never changing their license. Since you are no longer an independent agent, you need to have a different license. The reason why this is necessary is that the commission checks will be addressed to you and because of this, you won’t be able to reap the tax benefits offered by your business.
Moreover, as a person who provides a professional service, you will have to make sure that your license complies with the law of the state.
Here’s how you can properly use your real estate company:
- Get your tax ID number
- File a form for your LLC to be taxed and treated as S-Corp
- Change your business name
- Open a business bank account
Ultimately, you won’t be an individual but a separate entity that will be treated like a real estate business.
Taxing your entity
The best way to make sure that you are paying your taxes and that too in the right amount is to report your income on the 1040’s Schedule C. here are two big reasons why you should get your P.A taxed as an S-Corp:
- When it comes to auditing your company, certain deductions doesn’t interest the IRS
- Save 7.65%, which is the tax related to the employer portion
The process of forming an S-Corp is pretty easy. You will easily find the steps online or you can contact someone who is in the business and can help you set up your corporation.
Here’s how your PA is taxed differently:
- Form your real estate PA
- Send an application to the state’s real estate commission so that your license can be moved to the corporation
- File a form with the IRS so that they are notified of the change. If you don’t do this in the early stages then your corporation will be disregarded. As a result, you will be filling your 1040 on Schedule C
- Open a new bank account that is specifically for your corporation
One of the biggest benefits of forming a real estate PA is that you get to save on commission. Moreover, you no longer have to act by the book because you will be running your own corporation. You won’t have to share your personal sales or answer to anyone because you will be operating your own professional association.