Before we begin, we should clear the air that these views are not coming from a lawyer. This article will not give you legal advice. This article is sharing research that we have gathered, and our take on the business license controversy in the publishing industry.
Now that we have gotten that out of the way, let’s dive into what we’ll cover today.
In this article, we will find out whether or not authors need a business license, what type of business is best if you opt to do so, what is really needed for self publishing, and so much more.
- So, Do Authors Need a Business License?
- Should Writers Form an LLC or Incorporate?
- What Can a LLC or Corporation Do for Authors?
- Should Authors Write Towards Business Minded or a Hobby?
- How Can Multiple Corporations Proves Book Rights Protection?
- Does Self-Publishing Entail More Than Meet the Eye?
- Getting Your Book Publishing Company Off the Ground
So, Do Authors Need a Business License?
The majority of people will agree that it is professional to get a business license if opting to independently publish, but do you NEED one? NO!
Writing and marketing are only two aspects of self-publishing. When your books generate enough revenue that they become a business, you may want to consider how registering an LLC or a corporation can benefit you.
Should Writers Form an LLC or Incorporate?
Again, this will depend on your intentions and goals as a writer? Ask yourself:
- What is the purpose of forming an LLC or incorporating?
- Are you trying to protect your assets from claims and lawsuits?
- Do you want to reduce your taxable income from writing?
- How about legitimizing your freelancing company?
All of these questions are good to ask, and the answers will vary depending on your goals. It is typically not advised for writers earning less than $50,000 a year to incorporate or form an LLC.
Unless you're already finding a great deal of success, there are likely better options for most concerns. Let's look at each question.
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What Can a LLC or Corporation Do for Authors?
Developing your writing and marketing skills are essential to growing your author business.
If you want to make your author business a success, you should consider setting up a corporation or an LLC in addition to mastering your craft and implementing new marketing strategies. Corporations and LLCs have several advantages, including:
- This can save your children or other beneficiaries from costly probate when you pass book rights and royalties to them after you pass.This can save your children or other beneficiaries from costly probate when you pass book rights and royalties to them after you pass.
- If authors are sued over their books, this can help protect their personal assets.
- You can legally deduct many of your expenses from your business, including mortgage payments, mobile phone expenses, travel expenses, education expenses, auto expenses, and medical expenses.
- Depending on the author's individual circumstance, it can reduce taxes by 10%-70%.
Transferring personal expenses to the corporation is one of the more entertaining things authors can do. It is possible for an author to set up a Health Reimbursement Arrangement (HRA) which reimburses medical expenses such as almost any other non-elective medical expense, eyeglasses, dental expenses, prescriptions, deductibles, and insurance premiums.
The reimbursement becomes an expense for your business, but you do not pay taxes on the money you receive. By having your business cover your medical expenses, you just made them tax deductible!
You can legally get your company to pay for your life by setting up a corporation. Certain employee benefits are available to you as an employee of your company. It is harder for LLCs to access these benefits, but there are ways to make it possible.
Should Authors Write Towards Business Minded or a Hobby?
There are two main advantages to starting an author business.
The name you choose for your business is a key element in establishing your brand and separating yourself from other authors. Your marketing plan should include at least one aspect of building a well-known brand name, especially if you intend to write more than one book.
Secondly, operating book activities as a business may allow you a deduction from federal income taxes, even if they exceed royalties. A book author's book-related activities may be treated as a hobby for income tax purposes if they aren't operated as a business. It's bad news for most people because hobby expenses can't exceed hobby income, which severely limits their ability to deduct them.
It is important to note that not everyone needs to start an author business. As an author, you probably don't need a business if your primary goal is to write a memoir to be shared with family and friends and you don't plan on writing future books.
How Can Your Business Help You With This Expense?
If you set up your business properly, your company can pick up some of your personal expenses:
- Mortgage or home rent (by offering office space) $500-$1000
- Gas, repairs, car, (via leasing) $250-$500
- HRA (Medical expenses) $250-$800
- Travel – food, tours, hotel, flight
- Cell phone $75-$150
- Gifts $100-$500
- Retirement up to $19,500 for solo 401(k)
- Dependent care – $10,500
- Buying clients meals (parents, friends – if you do business with them)
- Education – online courses, books, seminars, school
- Dues – networking groups, business groups, etc.
In order to set these employee benefits in motion, you will need to create corporate resolutions and meeting minutes, but the work is well worth it.
You must ensure that all your employees are treated equally as far as benefits are concerned if you have more than one employee.
Being an author, however, has its perks-you may be the only employee required by your company.
How Can Multiple Corporations Proves Book Rights Protection?
Setting up two corporations (or LLCs) is an advanced strategy for protecting your book rights. The book rights are owned by one corporation, which licenses the rights to a second corporation, which distributes your book to Ingramspark, Amazon, etc. An income-producing engine (your book) cannot be taken by a creditor or judgment if you do this.
Another way to use this technique is to use expensive equipment owned by one corporate entity that is leased to the corporation signing contracts with customers. If a client sues your business, a vehicle, photography equipment, construction equipment, etc. will be protected.
Keep in mind that it can be expensive to maintain an additional corporation or LLC, so make sure the revenue you generate covers the cost.
Does Self-Publishing Entail More Than Meet the Eye?
Self-publishing and writing are not the only steps involved. Some of us have to wear both the hats of an entrepreneurand an author.
Authors who choose to incorporate or form a limited liability company as part of their business will have peace of mind regarding liability. They will be able to allocate more money to improving their writing and their business, as well as receiving better employee benefits.
Setting up your corporation or LLC is not as straightforward as self-publishing.
In order to concentrate on writing, authors often outsource accounting, marketing, and other business functions.
Don't be afraid to hire an expert if you want to set up a corporation or LLC.
The same goes when your writing evolves from something you create to something you publish. In order to reach your audience, you must protect your passion and everything you have invested in it.
Getting Your Book Publishing Company Off the Ground
- Apply for a business permit at your city hall and register the business. Your state's business office can help you obtain a federal tax identification number from the Internal Revenue Service and a state tax registration certificate. Book publishers do not need a license or permit.
- Install a fax machine, a phone, a printer, a computer, and supplies in your office. It is best to have a dedicated phone line and fax line, and if your office is in your home it should be located in an area away from distractions.
- Choose a hosting provider that offers online store features and a domain name.
- You can purchase brochures, stationery, business cards, and other marketing materials from your local printer. All printed materials should include your website and email address.
- Create seller accounts with online retailers of books, and create a list of physical distributors and bookstores.
- Draft a contract between you and the author with the assistance of a publishing attorney. If you desire, you can customize and print the contract electronically.
- Become a member of The Association of American Publishers or another national organization. Publishers can obtain valuable information about statistics, marketing, copyright law, and other topics from these organizations.
- Utilize writing websites, publications, and other avenues to market your services to authors. If you like one, contact the author to negotiate a contract and finalize the purchase.
- For the title you will publish, purchase an International Standard Book Number. A book's ISBN number is required for retail sales and can be obtained from R.R Bowker.
- Place an order with an online or local printer that specializes in book printing.
- Contact retailers and distributors about your book and list it on retail sites.