Making a living as an author can feel like running a small business, even if you’re the only employee. So it makes sense that a lot of authors at least think about turning their writing business into an LLC. But while it’s the right call in some cases, there are also plenty of situations where it’s not. We’ll take a look at some pros and cons, examine how authors can form an LLC, and then discuss the tax implications of being an author with an LLC.
Pros and Cons of LLCs for Authors
The biggest advantage is in branding. As an example, some self-published authors will feel more comfortable operating in the name of an LLC rather than under their own name. Being an LLC instead of a sole proprietor can add a more professional sheen to your interactions.
For instance, if you’re emailing a client, maybe you’d prefer to introduce yourself by saying, “I’m with The Write Stuff LLC” rather than “My name is Susan, and I’m a freelance writer.” Forming an LLC can suggest that you take yourself and your work a little more seriously. Of course, plenty of authors without LLCs also take themselves seriously as well. But if improving your brand is a priority, an LLC can help.
The biggest drawback is that, for a single member LLC, you’re probably going to pay a similar amount of taxes as a sole proprietor. Both single member LLCs with default tax status and sole proprietors have to pay federal self-employment taxes of 15.3%, and both report income to the IRS using Schedule C.
However, it may still be worth talking to a CPA about your LLC taxes. If you have an LLC that’s bringing in six figures a year, for instance, you might want to look into opting for an LLC with S-corp tax election status. In fact, talking to a CPA in general isn’t a bad idea before deciding on your LLC status. They can go over more about the advantages and drawbacks of every status.
What Authors Would Benefit From an LLC?
So what kind of authors would most benefit from an LLC? Simply put, you’ll benefit if you believe an LLC gives you better liability protections. But you’ll still need to maintain a clear sense of separation between yourself and your business.
If you’re a single member LLC, it’s especially important to keep your finances separate and write an operating agreement. That way, if someone does sue your single member LLC, you’ll have a stronger case to defend yourself in court.
If you do decide forming an LLC is the way to go, doing so is a relatively simple. We’ll discuss that more in the next section.
Forming an LLC as an Author
The exact process for forming an LLC as an author will depend on where you live, but here are four basic steps:
1. Name a Registered Agent
Your registered agent should be around during normal business hours to accept service of process and other critical documents. Business owners can act as their own registered agents, but in many cases, it makes more sense to hire a registered agent service.
2. Name Your LLC
You’ll want to make sure the name you want isn’t already taken in your state. You can typically check by searching a state’s business database or something similar. You should also look up state laws to ensure that your preferred name is acceptable. For instance, many states require you to add a business modifier like “LLC” to the company name.
3. Submit Required Paperwork to the State
In many states, the relevant paperwork is known as Articles of Organization. You’ll typically submit a form to the Secretary of State’s office, and you’ll almost always have to pay a filling fee as well.
4. Get an EIN
EIN stands for Employer Identification Number. You need this to file federal taxes, and you can obtain an EIN online via the IRS website.
How Authors With LLCs Pay Taxes
Since most authors with LLCs will form single member LLCs, they’ll pay taxes as pass-through entities. This means it’s not the LLC itself that pays the taxes directly. Instead, the income will get reported on the LLC member’s personal income tax returns after it “passes through” the LLC.
And as mentioned above, you’ll owe self-employment taxes too.