The Annual New Brokerage Review Checklist

Running a new real estate brokerage means wearing many hats, and taxes are one area where small mistakes can cost thousands. This annual review checklist helps you stay compliant, avoid penalties, and keep more of your commission income. Follow these steps once a year, ideally 60 to 90 days before your fiscal year end, to catch issues early.

1. Confirm Your Business Structure and Tax Deadlines

Your entity type determines how you file and pay taxes. Review your structure annually, especially if your business has grown or changed.

• Sole proprietorship or single-member LLC: You report business income on Schedule C. Quarterly estimated taxes are due April 15, June 15, September 15, and January 15.
• Partnership or multi-member LLC: File Form 1065 and issue K-1s to partners. Deadline is March 15 (or the 15th of the third month after year end).
• S corporation: File Form 1120-S and issue K-1s. Deadline is March 15.
• C corporation: File Form 1120. Deadline is April 15.

If you are unsure of your classification, check your IRS acceptance letter or ask your CPA. Changing structure later can trigger tax consequences, so review now.

2. Reconcile All Income and Expenses

Your brokerage’s books must match your bank statements and 1099s. Discrepancies trigger audits and penalties.

• Pull all 1099 forms from brokerages, MLSs, and vendors. Compare them to your recorded commission income.
• Reconcile every business bank account and credit card. Flag any unreconciled transactions.
• Categorize expenses correctly: commissions paid to agents, marketing, office rent, software, insurance, and professional fees.
• Use accounting software like QuickBooks or Xero. If you use a bookkeeper, review their work quarterly, not just annually.

Common errors: missing 1099s for contractor payments over $600, miscategorized meals (only 50% deductible), and forgetting home office deductions if you qualify.

3. Review Payroll and Contractor Classifications

Misclassifying agents as employees instead of independent contractors is a common and costly mistake. The IRS and state agencies are cracking down.

• Independent contractors: If you pay agents commissions without withholding taxes, you must issue 1099-NEC by January 31. Ensure they have a signed independent contractor agreement.
• Employees: If you have administrative staff, you must run payroll, withhold FICA, and file quarterly Form 941. State unemployment taxes also apply.
• Check state rules: Some states, like California, have stricter tests for independent contractor status. Review your agreements annually.

If you are unsure, consult an employment attorney. Reclassification can mean back taxes, penalties, and interest.

4. Evaluate Deductions Specific to Brokerages

Real estate brokerages have unique deductions. Make sure you claim every one you are entitled to.

• Commission expenses: Payments to agents are deductible, but you need proper documentation (1099s, contracts).
• MLS and association fees: Dues to local, state, and national associations are deductible.
• Marketing and advertising: Includes website costs, social media ads, print materials, and signage.
• Office expenses: Rent, utilities, internet, and office supplies. If you work from home, calculate the home office deduction using the simplified method ($5 per square foot, up to 300 sq ft) or actual expenses.
• Professional development: Courses, designations, and conference fees are deductible.
• Technology: Computers, phones, and software (CRM, transaction management). If you use the actual expense method, you can depreciate equipment.

Keep receipts and a mileage log for business travel. The IRS standard mileage rate for 2026 is $0.70 per mile (estimated, check IRS.gov).

5. Check Estimated Tax Payments

If you expect to owe $1,000 or more, you must make quarterly estimated payments. Underpayment penalties apply if you miss deadlines.

• Calculate your expected annual income and tax liability. Use IRS Form 1040-ES.
• Pay at least 100% of last year’s tax liability (110% if your adjusted gross income was over $150,000) to avoid penalties.
• If your income fluctuates, consider the annualized income installment method to align payments with actual income.

Set reminders for April 15, June 15, September 15, and January 15. Use the Electronic Federal Tax Payment System (EFTPS) for free payments.

6. Review Retirement Plan Options

Retirement plans reduce taxable income and help retain agents. Compare options for your brokerage:

Plan Type	Contribution Limit (2026)	Best For
SEP IRA	Up to 25% of compensation, max $69,000	Sole proprietors, small teams
Solo 401(k)	$23,500 employee deferral + employer profit share up to $69,000 total	Solo owners or owner-spouse
SIMPLE IRA	$16,000 employee deferral + employer match (3% or 2%)	Brokerages with a few employees
401(k)	$23,500 employee deferral + employer match, total limit $69,000	Larger brokerages with many employees

Set up plans before December 31 to deduct contributions for that year. SEP IRAs can be set up by the tax filing deadline, but earlier is better.

7. Prepare for State and Local Taxes

State taxes vary widely. Review your nexus and filing requirements.

• State income tax: Most states tax business income. Check your state’s rate and filing deadlines.
• Sales tax: If you sell products (e.g., home warranties, marketing materials), you may need to collect sales tax.
• Franchise tax: Some states, like Texas and Delaware, impose franchise taxes on LLCs and corporations.
• Local taxes: Some cities and counties have business license taxes. Renew annually.

Use your state’s revenue department website to verify requirements. A CPA with local expertise is invaluable.

8. Audit Your Compliance with Licensing and Insurance

Tax review is also a good time to check your business licenses and insurance coverage.

• Broker license: Renew per state requirements (usually every 1-2 years).
• Errors and omissions (E&O) insurance: Most states require it. Premiums range from $500 to $2,000 per year for new brokerages, depending on volume.
• General liability insurance: Protects against property damage or injury. Costs $300 to $1,000 annually.
• Workers’ compensation: Required if you have employees. Rates vary by state and payroll.

Keep certificates of insurance on file and review coverage limits annually.

9. Document Retention and Recordkeeping

Keep records for at least 7 years. The IRS can audit up to 3 years, but fraud or substantial errors extend that.

• Store receipts, invoices, bank statements, and tax returns digitally. Use cloud storage with backup.
• Keep a mileage log for business travel.
• Retain copies of all contracts, including agent agreements and leases.
• If you use a bookkeeper, ensure they provide monthly reports and year-end summaries.

FAQ

Q: When should I do this annual review? A: Start 60 to 90 days before your fiscal year end. For calendar year businesses, that means October to December. This gives time to adjust estimated payments and make last-minute deductions.

Q: What if I missed a quarterly estimated tax payment? A: Pay as soon as possible. The IRS charges a penalty based on the amount and time overdue. Filing your return and paying any balance due can reduce penalties.

Q: Can I deduct home office expenses if I meet clients at coffee shops? A: Yes, if you use a dedicated space exclusively for business. The simplified method is easy: $5 per square foot, up to 300 square feet. Keep a log of business use.

Q: Do I need to issue 1099s to real estate agents? A: Yes, if you paid them $600 or more in commissions during the year. File 1099-NEC with the IRS and provide copies to agents by January 31.

Related guides

• The Complete New Brokerage Startup Checklist
• 7 Questions to Ask Before Buying a New Brokerage
• Best New Brokerage Tools Compared in 2026

The bottom line

An annual review is not optional for a new brokerage. It protects you from penalties, maximizes deductions, and gives you a clear picture of your financial health. Set aside a few hours each year to run through this checklist, and work with a CPA who understands real estate. The cost of professional advice is far less than the cost of an audit or reclassification. Start this week: pull your 1099s, reconcile your accounts, and schedule a meeting with your tax advisor.