When you begin earning money as a blogger, there comes a time when you begin to wonder how much you should formalize your business. It’s a good question; between liability worries and tax issues, working as a “sole proprietor” of a business can be risky, and an LLC can help. Here’s some basic info about who and what an LLC is and why you should or shouldn’t get one.
LLC means “Limited Liability Corporation.” According to the IRS, that means:
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Basically, the LLC offers you the benefits of a partnership or S corporationship, without the tax liabilities. With an LLC, you are able to avoid the double taxation that comes from owning a corporations (meaning, your business pays taxes and you also pay taxes on your salary, which comes from your business income). You are also protected from debt incurred by the LLC, and have the opportunity to sell the company if you so desire. In addition, you have a fair amount of credibility when you have an LLC, which can make you far more attractive to those that want to hire you.
So, what’s the downside? Well, filing for the LLC can take a fair amount of time and money, although there are some great services such as Biz Filings that can make the process much simpler and affordable (disclosure: I worked with Biz Filings to form my own LLC). In addition, some states tax LLCs at a higher rate than they tax sole proprietors to do business, so be aware of your state rules before filing for an LLC. Lastly, because the LLC as an option is still fairly new, there are many changes still happening regarding the laws and tax rules that apply here. Also, you don’t pay yourself wages when you have an LLC; you can use the income earned by the company at will, and that can be awkward, particularly if you have a partner.
So, as you can see, there are both advantages and disadvantages to forming an LLC. What do you think? Are you likely to set one up for your blogging business?