Should You Incorporate Your Business?

April 5th, 2012 → 8:00 am @ Carol

Excerpt from: Business Tips and Taxes for Writers

The most common business form for authors is the sole proprietorship. A more complicated, but potentially beneficial business structure is the corporation. The main benefit of corporate business status is limited liability for the owners. The corporation offers a shield of protection so that the author’s personal assets are protected from business liabilities. Additionally, corporate status may offer some tax benefits for writers and publishers.

Corporations are desirable business structures for authors who form a publishing company, hire employees, or do very well financially. (I consider “doing well financially” to mean earning at least $50,000 annually or enough to support your family. Your accountant may define it differently).

There are two types of corporations—S corporations and C corporations. An S corporation is named after a section of the tax code, but I like to think of the S as meaning small. S corporations have a limited number of shareholders (100), so many of them are indeed small corporations, but many times an S corporation has only one shareholder, the owner. On the other hand, C corporations can have an unlimited number of shareholders, are typically run by a board of directors, issue stock, and distribute dividends.

When to Consider S Corporation Status:

• You wish limited liability to protect your personal assets
• You wish to reduce self-employment taxes because part of your income is from passive sources
• You can pay yourself reasonable compensation from your businesses
• You are prepared to deal with the legal and financial complexities of a corporation
• You can afford the cost of a business attorney to incorporate your business and a CPA for your payroll and tax preparation

Need help deciding if corporation status is right for you? I offer a business and tax consultation service for writers if you do not have a local CPA. Email me here.

Learn even more through my book, Business Tips and Taxes for Writers.

Carol Topp, CPA