Authors can become extremely successful for a variety of reasons. Many authors dedicate their lives to writing novel after novel, where writing truly becomes their business. Other authors are lucky enough to publish a single bestseller or hit. Regardless of their reasoning, many authors decide to establish a business entity to operate their writing business. There are a number of business entity structures, but Limited Liability Companies are largely more popular because of their substantial benefits. However, according to the IRS, “A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, you should check with your state if you are interested in starting a Limited Liability Company.” It is therefore vital that authors and their teams research LLCs per their state, and unpack all tax implications and legislations.
Why Authors Could Need an LLC
Authors are frequently encouraged, by their lawyers, publishers, and agents, to form a business entity. This is largely because forming a business entity can decrease tax burdens, and protect authors from various forms of liability. Additionally, authors are granted with greater legitimacy and professionalism by possessing a business entity. Similarly, by doing so, they are also able to gain more control over their publishing rights and distribution.
LLCs are often seen as a compelling business entity for authors due to its simplicity and flexibility. LLCs offer authors the ability to protect their assets, attain tax benefits, and maintain complete security. Authors are also able to receive a level of anonymity with their business dealings. Moreover, the separation between personal and business finances can be very beneficial for both new and already established authors.
Unlike other forms of business entities, such as corporations, LLCs are quite simple to form, and need far less documentation and work to maintain. If authors intend to make a living and lifestyle out of writing, or have already produced a bestselling novel, LLCs are perhaps the best option for them.
How Authors can Form an LLC
LLCs are relatively easy to form, however, like any business entity, they require planning and documentation for formation. This blog is a beneficial guide on LLC formation for authors.
To form an LLC with a writing business, authors need to follow the same procedure as any other business. This involves a set of steps.
Firstly, authors need to select the state within which they would like to form their LLC. They first need to research the variations in laws for LLCs across different states. Some states have more tantalizing regulations than others. These states include Wyoming, Delaware, Nevada, and Florida. States like California and New York tend to have stricter regulations and less tax benefits.
Authors then need to select a name for their LLC. To do this, authors need to find a compelling and striking name, but also ensure that this name has not already been used and registered. Additionally, all business names need to include Limited Liability Company, or LLC.
Next, authors need to designate a registered agent for their business. Registered agents receive and collect important documents that pertain to the business, including but not limited to legal documents. Businesses can select a registered agent from within their company, or make use of a registered agent service.
The following two steps require planning and documentation. This necessitates some time set aside to ensure that everything is done correctly. Authors need to file their LLC Articles of Organization, as well as create an operating agreement. Then, finally, authors need to obtain an EIN number. This can be obtained for free.
Whilst forming an LLC is one of the most simple options for business formation, things can go wrong, and documents can be filed incorrectly. It is important to set aside the time and resources to not only plan effectively, but also tackle problems that may arise. Authors, like any other business, can make good use of business consultants and lawyers to make the process easier and less time consuming.
The Benefits of LLCs
The most prominent benefits of LLCs are their tax advantages. LLCs operate as pass-through taxation entities. This means that business owners do not pay tax as an entity, but pay tax at an individual income level on their own tax returns. This is applicable for both federal and state tax. However, depending on the state of formation, some LLCs may be expected to pay other forms of tax. This reiterates the necessity to effectively decide on the state of formation.
The other most well known benefit of LLCs is the liability protection that they provide. This means that owners are protected from business debt, lawsuits, and any other form of liability. Additionally, LLCs offer a level of anonymity and privacy that other entities do not. By utilizing a registered agent, through a service or otherwise, an author can reduce and even eliminate their personal information from LLC contact information requirements. This is an attractive component of both LLCs and registered agent services.
Final Thoughts
Successful authors should consider forming a business entity to get the most out of their earnings, reduce tax burdens, limit liability, and increase business anonymity. Similarly, publishers and agents encourage authors to do this because legitimacy can be granted to authors that do have an active business entity. This is compelling to authors that want more leverage to have a say in their works’ distribution and publishing. Authors can form an LLC like any other business would, and also receive all of the same benefits. However, it is very important that authors research the state requirements and regulations of LLCs, so that they can select the state that benefits them the most.