Do Authors Need An LLC: Your Helpful Guide

Do authors need an LLC? This is a crucial question, as self-publishing involves more than just writing and marketing. If your books generate enough revenue and become more of a business, you may want to consider how a corporation or LLC may benefit you.

Let’s take a look at when you MAY NOT need a corporation or LLC and when you MIGHT. But first, let’s get all the legal stuff out of the way:

**DISCLAIMER: I am not a CPA or an attorney and the topics discussed are examples used by past and current clients. No two situations are alike and techniques that work for one person may not work for another. No action should be taken in regards to any of the subject matter in the blog unless under the guidance of certified professionals such as CPAs, attorneys, and financial advisors.

Should you have an LLC as an author?

There is no one size fits all answer to this question, but there are reasons why you may want to set up an LLC or corporation, or continue writing as you always have. Let’s look at situations when setting up an LLC or corporation may or may not be right for you and your unique situation.

When setting up an LLC or corporation may not be for you

Do authors need an LLC or corporation? Not always. I have a colleague who wrote a book in which he uses humor to explore what he thought were the worst ideas in history. It is a great book, but he probably only sells a few copies per month. 

He has a successful career in animation and does not need the money from the book, so he does not promote it or attempt to foster sales in any way. Setting up a corporation in his situation would be a waste of time and money.

When it comes to setting up a corporation or LLC, if your book and other business activities are not producing at least $10,000 a year, then a corporation may not be right for you. 

Also, if you plan to earn less than $40,000 per year as an individual from all sources (job, book, business, investments, etc.), or as a married couple you plan to earn less than $80,000 per year from all sources, then a corporation or LLC may not be necessary for you.

If any of the above fits you and your situation, answering, do authors need an LLC, may be a simple “no.”

When setting up a corporation or an LLC may be right for you

If you know know when authors may not need an LLC or corporation, when do authors need an LLC? You may be growing your author business or you may have that runaway hit. 

If your book royalties and/or business revenue are more than $10,000 per year, or if you’re certain you’re going to generate $10,000 or more from book royalties and/or business income, then you may want to set up a corporation or an LLC. 

Some possible author business situations where a corporation or an LLC may be advisable for you:

• You offer back-end products or services in relation to your book
• You operate a business of any kind, even if it’s not related to your book
• If you’re paying more than 21% in taxes as an individual or as a sole proprietorship (also known as a DBA or FBN)
• You have assets such as retirement accounts, real estate, investments (such as stocks, mutual funds, or cryptocurrency) that you want to protect against potential lawsuits

If you’re more than just an authorpreneur, here are other situations that you may want to think about when asking, do authors need an LLC:

• If you plan on applying for business loans or credit lines at any point
• If you plan on raising money from investors to fund your business venture at any point
• If your book or your business is in high-liability industries such as medical, dental, construction, restaurants, etc.
• If aging your corporation or LLC is important for your plans
• If you know you’re going to succeed no matter what

What is the best business structure for an author?

For many authors, the best business structure is to form an LLC. But to fully understand business structure, it’s important to understand liability and your books. You’ve put so much thought into your words and you’re hoping readers resonate with what you’ve written.

But the impact that your books create are out of your control. The last thing you need is to be sued because of what you wrote. This is why you’re asking, do authors need an LLC, after all.

There is a liability attached to your product, and we live in a litigious society. The United States has the highest litigation rate in the world at 5,806 suits filed per 100,000 people as compared to Canada. While authors often don’t think about being sued, it is a reality that we have to be aware of.

Nonfiction tends to create more liability than fiction as it usually offers advice or a course of action. Readers may follow an author’s advice and sue them if they experience negative results, despite any disclaimers you have at the beginning of your book.

Fiction typically doesn’t offer advice or a specific course of action, but that does not mean it’s exempt from liability. Today, anyone can get offended or have an issue with your book. 

Even children’s books can carry liability, so make sure you protect yourself from would-be judgment seekers looking for easy payouts in court.  

Authors with back-end businesses are producing liability on two fronts: the book and the back-end products and services. Asking, do authors need an LLC, is am important step in protecting yourself.

The point: no author is completely safe from impending lawsuits. But, if you have income and assets to protect, forming a corporation or an LLC can help you protect yourself in the event of litigation. 

Do authors need an LLC? You don’t have to set one up, but it can be an added layer of protection.

Do authors need an LLC? What it can do for you

LLCs and corporations provide a barrier that help protect your personal assets from being taken by someone who sues your company.

If you set up your corporation or LLC correctly and maintain it properly, you can add this layer of protection for your home, vehicles, savings accounts, retirement accounts, investments, etc.

In growing your author business, you know the benefits of working on your writing and improving how you market your book.

In addition to mastering your craft and implementing new marketing strategies, you can take into account the benefits of setting up a corporation or an LLC for your author business.

A few advantages to a corporation or an LLC include:

• It can cut taxes 10%-70% depending upon the author’s individual situation.
• It can LEGALLY move many of your personal expenses to business expenses, thereby getting valuable tax deductions, including medical expenses, auto expenses, education, travel, mobile phone, portions of your mortgage, and utilities.
• It can help protect personal assets if authors are sued because of their books’ content. 
• It can avoid costly probate when passing book rights and royalties (along with other assets) down to children or other beneficiaries when you pass.

Do authors need an LLC? Well, one of the more fun things authors can do is transfer many of their personal expenses to their corporation. 

For example, an author can set up an HRA (Health Reimbursement Arrangement) to reimburse medical expenses, including insurance premiums, deductibles, prescriptions, dental expenses, eye glasses, or almost any non-elective medical expenses. 

This becomes an expense to your business, but you do not pay taxes on the money you receive for the reimbursement. You just made your medical expenses tax deductible by having your business pay for them! This is one of the many benefits of asking, do authors need an LLC?

The fun part about setting up a corporation is legally getting your corporation to pay for your life. As an employee of your corporation, you are entitled to certain employee benefits. These are not as easily available to LLCs, but there are ways to make it so that they are. 

Here are some personal expenses that your business can pick up if you set it up correctly:

• Home rent or mortgage (through offering office space) $500-$1000
• Car, repairs, gas, (through a car lease) $250-$500
• Medical expenses (HRA) $250-$800
• Travel: flight, hotel, tours, food
• Cell phone $75-$150
• Gifts $100-$500
• Retirement up to $19,500 for solo 401(k)
• Dependent care: $10,500
• Buying clients’ meals (friends and parents, if you do business with them)
• Education: school, seminars, books, online courses
• Dues: business groups, networking groups, etc.

You will have to create the proper paperwork in the form of meeting minutes and corporate resolutions in order to set these employee benefits in motion, but it’s well worth the work.

Keep in mind that if you have more than one employee, all employees must be treated equally as far as benefits. 

But, that’s the beauty of being an author: you are usually the only employee necessary for your corporation. So, do authors need an LLC? There are many reasons why you may want one.

How to protect your book rights with multiple corporations

An advanced strategy for protecting your book rights is to set up two corporations (or LLCs). One corporation owns the books rights and licenses the book rights to your second corporation, which will distribute your book to Amazon, Ingramspark, etc.

This can help stop a creditor or judgment from getting access to taking the income-producing engine (your book) from you. 

This tactic can also come in handy for other types of businesses you own: have one corporation own expensive pieces of equipment and lease it to the corporation that signs contracts with customers. 

This way, construction equipment, photography equipment, vehicles, etc., can be protected if a client sues your business. It can be expensive to maintain an additional corporation or LLC, so make sure that the revenue you are generating makes up for this additional expense. 

All of this in mind, this is why you want to seriously consider, do authors need an LLC?

Do I need a business license to be a writer?

While you do not need a business license to be a writer (anyone can write!), you may want to consider forming an LLC to create an extra layer of protection for yourself.

We believe everyone has a book inside them, but even so, you may want to ask, do authors need an LLC, before publishing your book!

Should I form an LLC as a content creator?

Just as you do not need to form an LLC to write a book, which is a form of content creation, you do not need to form an LLC as a content creator. However, it may be helpful to have a distinction before you and your business in case you do get sued.

Do authors need an LLC? Do content creators need an LLC? In sum, you do not necessarily need to form an LLC, but it can help with your peace of mind.

Self-publishing entails so much more…

Writing and self-publishing can go beyond just these two steps. For many of us, we need to switch between our author and entrepreneur hats. For some authors who have chosen the corporation or LLC route as part of their business, they can have peace of mind regarding liability.

Additionally, answering, do authors need an LLC with a yes can free up more money to go into improving their writing and their writing business, along with many more attractive employee benefits. 

Many authors outsource their marketing, accounting, and other parts of the business so that they can concentrate on writing. In the same way, you can certainly set up a corporation or an LLC yourself, but don’t be afraid to hire an expert. 

Just as your writing has grown from being something that you made to something you put out into the world, you want to make sure that you protect your passion and what has been attached to it from anything that could derail you from reaching your audience.   

Steps for setting up an LLC for authors

If you’ve decided that you do want an LLC, here are the steps for setting one up.

Choose a name

Choose a good name for your company. Ideally, the name will not have your name or initials in it. 

This adds another layer of privacy and also makes your company look more professional.  Entrepreneurs love to use their name or initials–my first company name was “MDW Enterprises, Inc.”– but it gives the impression that you are small-time. 

I eventually changed the company name to the more general “Augmentus Business Solutions.”  

The name comes from a combination of the words “augment” and  “us,” which felt appropriate given the assistance I was providing clients in the growth of their businesses.

Come up with several variations on the name you create in case it has already been taken.

Go to the Secretary of State database and perform a search to see if the name has already been taken. 

Some states are pickier than others and may reject your filing if the name is too close to others. If you are forming a corporation, you will also need to check the LLC database as the filing can get rejected if the name is too close to that of an LLC and vice versa. 

Some states (such as California) require you to do a separate name search for both entity types while others include both in a single database.

For example, A-Plus Construction, Inc. may be denied if there is already an A-plus Construction, LLC. 

Sometimes you can get away with adding a variation on the name–“A-plus Construction Enterprises, Inc.”–if the representative at the Secretary of State’s office is in a good mood. 

If the name still gets rejected, try something like “A-plus Building, Inc.” or “A-Plus Builders, Inc.”  

You’re going to be stuck with your business name for a long time, so make sure it’s something you can be proud of.

Prepare and file articles

The next step is to prepare the Articles of Organization for LLCs. The articles contain the entity name, business address, mailing address, registered agent, purpose statement, and the incorporator. An LLC for authors requires you to list the management structure: member managed, or manager managed.

Most states allow you to file the articles online at the Secretary of State website.  Some states require you to mail in a hard copy to the Secretary of State’s office.

Filing fees are generally $100-$200. However, they can go much lower and higher depending upon your state, as low as $45 in Arkansas and up to $300 in Texas.

Obtain your tax ID from the IRS

The IRS will issue your business an EIN (Employer Identification Number), otherwise known as your business Tax ID. 

It is a good idea to wait until your articles and business name have been approved by your state before you go get a Tax ID in the business name.

You do not want to obtain a Tax ID too early and find out that your business name has been rejected by the Secretary of State. You would have to go get another Tax ID from the IRS and shut the other one down.

Order your or membership kit

These kits obtain membership certificates for LLCs and stock ledgers that record to whom you issue stock.

Many kits run between $50 and $100 and come with templates membership agreements which outline the rules that you can choose to adopt for running your corporation. 

Also, completing this step is important to maintain asset protection.

Some of it is straightforward, and some of it may require you to seek the advice of an expert.

Open bank accounts

Most banks require your tax ID and your Articles of Organization to open a bank account for your business. Other banks may require other documents, so it is a good idea to call your bank for a list of required documents before heading down there, so you don’t have to make multiple trips.

Find a registered agent

By law, every LLC for authors must have a registered agent. A registered agent is a person or entity that is available for someone to serve a lawsuit during normal business hours.

You can be your own registered agent if you have someone at your office during normal business hours Monday through Friday. However, if you are running your business from your house as a solopreneur and you are out meeting clients during the day, you can get into trouble by not being available for a lawsuit to be served. 

It is not always a good idea to have your home address listed on public record. Thus, you may want to hire a company to act as your registered agent. This adds a layer of privacy for your personal residence and ensures that someone will be available 100% of the time during business hours.

Registered agents typically cost $100-$300 annually.  My company offers registered agent services for our clients in CA for $100 and we include the annual filing of the statement of information (including the $25 state filing fee).

File additional documents once formation is complete

In most states, you will have to file an annual document that lists your business’s physical address, mailing address, and registered agent. Many states have their own version of this form, which may require additional information. 

This report typically keeps the state up-to-date on any changes in mailing addresses or corporate headquarters for your business entity, any new company directors and their addresses, and sometimes even earnings for the year as the price of the annual report can sometimes be based on revenue.

These reports can range from as little as $0 all the way to $500 or more depending on the state of incorporation. 

Some states charge an annual fee in addition to the annual report fee. Nevada charges $500 for its annual fee (business license registration) and another $150 for the annual report of officers and directors.

These states charge $0 for their annual filings: Arizona, Idaho, Minnesota, Mississippi, Missouri, New Mexico, Ohio, South Carolina, and Texas.

Colorado, Hawaii, Kentucky, Montana, Nebraska, New York, and Utah charge $20 or less for their annual report filings.

File annual tax returns

Remember that you will have to file a separate tax return for your business in most cases: IRS Form 1120 for corporations, IRS form 1120-S for S corporations, and IRS form 1065 for LLCs with multiple members. 

Don’t forget to also file a state tax return if your state requires it (most states do).

You will have to pay a CPA to file taxes for your business entity which can typically cost between $250 and $500 each year for a simpler tax filing. 

CPAs can charge up to $1000 and beyond for more complicated business filings. This usually happens when you have several different types of income that are difficult to track. Usually if you have this problem, you are making a lot more money and can afford the increased professional fee.

Maintain your LLC

Be sure to keep up on your annual fees, annual document filings, and tax returns. A state may revoke your corporation or LLC if you do not. Most entities require some sort of annual meeting.  

Corporations require annual meetings to elect officers and directors and even meetings for major decisions or corporate actions such as purchasing equipment or vehicles, signing leases, adopting employee benefits packages, etc. 

If you get sued and you have not completed this step, the suing party may be able to pierce the corporate veil and come after your personal assets by claiming that you were not acting as a legitimate business.  

Can I create a corporation or LLC for authors in a different state? 

The short answer is yes. 

However, if you live in one state and file in another to avoid paying taxes in your home state, you will most likely lose that battle. I had a client in California that decided to file a corporation in Texas since Texas has a lower corporate tax rate at only 1%. He was attempting to avoid the California corporate tax, which is one of the highest in the country at 8.84%.  

I warned him against this course of action since California’s Franchise Tax Board has been referred to as being even more aggressive than the IRS. 

They were able to locate my client’s corporation in Texas and they contacted him with the happy news that all the income the corporation had generated would also be taxed in California since he lived in California and owned 100% of the shares. 

My client now had to pay taxes and annual maintenance fees in both states, costing him a lot of money. 

Do authors need an LLC? Take your next step

Now that you know the answer to, do authors need an LLC, you may want to consider using your book to generate more income. Use our Book Profit Calculator to see how much profit your book can bring you!