Should an Author start a Company and become an Entrepreneur/a Business?

Our views on this are very, very, very clear – There is absolutely no good reason to not incorporate as a LLC or Corporation

In fact, you absolutely MUST incorporate as an LLC or a Corporation if you are serious about building a career as an author

Very Important: This is not Legal or Tax Advice. Please consult a lawyer for legal advice. Please consult a CPA for tax advice

Very Important: Your CPA is your Best Friend if you want to be wealthy or even just well off. At no point should you start thinking you can replace a good Chartered Accountant with your own web research or with advice from other authors. Skimping on an editor or a cover designer only kills your book. Skimping on a CPA (whether or not you are incorporated) kills your financial wealth and financial happiness

Disadvantages of Incorporating as an LLC or a Corporation

1. You have to pay around $300 to $500 to form an LLC. It will be higher in certain states and countries
2. You have to file taxes for the LLC/Corporation if you are not doing tax pass through
3. You have to pay an annual LLC registration fee. For Example: It’s $300 for Delaware. You have to pay this even if you had no profits, and even if you did tax pass through
4. There are some minor inconveniences such as opening a bank account for the LLC, getting a TIN or EIN, handling documents
5. You have to pay for a Registered Agent if you incorporate in a state other than where you live. This can be between $50 to $150 a year

Advantages of Incorporating as an LLC or a Corporation

1. Perhaps the biggest advantage is that you can expense everything you spend on your career as an author as a company expense. Without a company, what happens is that you pay for everything with your money, while still paying taxes on your entire earnings (book sales and your day job earnings and everything else like capital gains). With a company, you can show all your author related expenses as expenses to the company
2. Perhaps the second biggest advantage is that the LLC or Corporation provides a legal shield. People cannot sue you – they have to sue the company. This might not seem like a big issue – until you write something that triggers some one with thin skin or someone who is a nutcase and they sue you. With an LLC they cannot reach your personal money and your personal assets
3. Perhaps the third biggest advantage is that the LLC or Corporation allows you privacy and security. Open a bank account for the company. Use the company address. You will not have any crazy people or overeager fans flocking to your house wanting to get an autograph (or a thumb)
4. Another big advantage is that you can show part of your home as your home office and part of your car costs as company expenses (the latter only if you travel for your career as an author). If you live in an apartment or a small house then 20% to 40% of your mortgage/rent can be company expenses
5. Having an LLC gives you a lot of Credibility
6. When signing a book deal or signing Film options or TV options, having an LLC puts you in a slightly better position
7. Perhaps the joint biggest advantage of incorporating as an LLC or a Corporation is that you have to take everything seriously – which you should. Whether you accept it or not, you are an entrepreneur and a small business. If you keep pretending it is all a nice hobby, you will not be able to succeed
8. Perhaps another joint biggest advantage of incorporating as an LLC is you get to see whether or not you have an actual career as an author. If the business is profitable or wildly profitable then you have a shot at being an author. If you have enough in the company bank accounts to cover 3 to 5 years of salaries you can make the jump to full time author. On the other hand, if the business is break even or a loss maker, then you should definitely not quit your day job

Key Things to Keep in Mind when Incorporating as an LLC or a Corporation

1. Delaware is the best state in the US to incorporate. If you have some personal reason to incorporate somewhere else, that’s fine. However, the reality is that Delaware is by far the best state in which to incorporate
2. You must incorporate in the US if you are targeting the US market. You must incorporate in UK or Europe if you are targeting the UK or European markets. Regardless of what they claim, each country does massive protectionism and greatly favors its own companies. China is clear about being protectionist. US, UK, EU pretend to be ‘open’ but are just as protectionist. Always incorporate in the country in which your main market is, or you will forever have invisible threads holding you back
3. You have to take it seriously. An LLC allows for tax pass through i.e. your LLC earnings just pass through to you. You still have to cover the annual registration fee and other requirements, depending on what State and Country you are incorporated in. If you have decided to create a Corporation then there are additional responsibilities
4. You absolutely must get a good CPA because that CPA will save you a lot more money than you pay them. Equally importantly, the CPA will ensure you fulfill all your tax obligations
5. You must treat it as a business – take it seriously, manage your finances, think of yourself as an entrepreneur and a CEO, focus on product quality, focus on customer acquisition and customer retention