Self-publishing can involve 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.
This guide exploring do authors need an LLC covers:
- Do I need a corporation or LLC as an author?
- Understanding liability and your books
- What a corporation or LLC can do for you as an author
- How to protect your book rights with multiple corporations
Do I need a corporation or LLC as an author?
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
I have a colleague who wrote a book for fun, in which he explores in a humorous way 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.
When setting up a corporation or an LLC may be right for you
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 if you haven’t yet set up a corporation or 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.
Read between the lines: understanding 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.
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.
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.
Corporations and LLCs 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 a layer of protection for your home, vehicles, savings accounts, retirement accounts, investments, etc.
What a corporation or an LLC can do for you as an author
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 book contents.
- It can avoid costly probate when passing book rights and royalties (along with other assets) down to children or other beneficiaries when you pass.
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!
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, 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.
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.
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 and can free up more money to go into improving their writing and their writing business, along with many more attractive employee benefits.
While self-publishing isn’t difficult to do on one’s own, it may not be the case when setting up your corporation or LLC.
Many authors outsource their marketing, accounting, and other parts of the business so that they can concentrate on writing.
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.
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