The business side of writing is often boring and even taxing (see what I did there?).
But whatever the source of your freelance income—Amazon, Smashwords, a book publisher, Model Railroader, you name it—you need to track expenses and stay out of jail.
And that’s not all.
Many authors remain sole proprietors because they earn little. Wrong! And not just because the IRS could still make trouble if you mess up. Other reasons exist to become a Limited Liability Company, aka an LLC.
The more successful you become, the more time you’ll need for grubby details.
“This not working is really hard work,” says a friend of mine who recently quit his day job and is now writing full-time.
Once you reach that level, an LLC will reduce the stress of setting up a company to manage your writing income and expenses. Do so before you’re besieged with a long list of responsibilities and deadlines.
In most states, the initial formation of an LLC is simple, requiring just a few forms and the payment of a fee. Before you start, however, talk to an accountant. Make sure things are legally set up the way you want them to be for your anticipated future income.
Choose your business name wisely
Many people advising writers say your company name should be the same as your name—for instance, Troy Lambert, LLC. Well, not always.
If you have a common name, share a name with a celebrity or another famous person—perhaps even someone who is infamous—you may want to choose another name. Um, do you really want to operate as Charles Manson, LLC?
Start with a simple Google search of your name and see what comes up. If the first few items are your social media profiles, or you are at least on the front page of Google, your name will probably work fine. But if your name is on page 4 or 5, and you have a common name like “John Smith,” think of a different company name.
If your name isn’t available, even with a variation like the one above, then choose another for your website—preferably one that coincides with the name of your business.
Pick something related to what you write, but not so narrow you are locked into one genre, writing style, or single series you might be working on. Think long-term. Base your choice on how you want to be known, not just how you are known now.
If you provide services to other writers, including proofreading, editing, or just general career advice in exchange for money, you are running a proofreading, editing, or consulting business. Not everyone may love your work. What if a lawsuit claims your advice damaged a client’s work or reputation?
If you are a sole proprietor and do not have an LLC or other business entity, you are solely responsible for defending those types of charges, and your personal finances can be at risk. In Vegas, this is called gambling with the rent money.
An LLC can at least help shield you. While the company can lose money and assets, you are generally protected from personal liability. Of course, the company should also carry professional liability insurance just in case, which is a relatively cheap way to protect company assets as well.
Better for invoicing and paying bills
If you work as an editor, you should have a contract, and when you have completed work for someone, you often need to send an invoice. Having an LLC makes it easy to do this, and makes you appear much more professional than simply sending one from your personal email.
Companies often want an invoice number, a date, and a description of services for them to pay invoices. If you do freelance work of any kind, you will need to issue a professional-looking invoice.
On the other side, invoices are a great way to prove income, even if it is small. You do have to be careful as an author with the manner in which you bill someone using an invoice. PayPal and other services may come with fees, so factor them into how much you charge.
If you are trying to qualify for a home or auto loan, proof of income is often challenging for authors and freelancers. An invoice, especially one you can prove is paid, can serve as that proof of income.
As an author, you will also probably hire cover designers, editors, and formatters. These are expenses you want to write off your taxes. Treating these separately from your personal finances makes it much easier to categorize and prove them.
You’re going to hire people
You are going to need to hire people to do certain tasks for you. You will need covers and other graphics designed and you’ll need to hire an editor, even if you are one. Also, you’ll need your books formatted from .doc files to ebooks and even print.
The most fun part of making money as an author and freelancer is taxes, and you’ll want to do some studying on this even if you don’t make a lot of money. You need to take deductions to lower your tax liability, correctly report income and expenses, and declare sales tax where applicable.
This means you should have a separate bank account for your business, one that you do not use for anything else. This makes these transactions easy for you and your accountant to keep track of. You should never mix personal expenses with these accounts. If you must take money from the business, pay it to yourself as a salary or bonus before you spend it.
These kinds of things will keep you out of trouble with the IRS. Your business should also invest when you get to that level of income, and you should be aware of tax changes that might come, and how they would affect your business.
Having your own LLC is good for you in a number of financial and business ways. It helps you plan for the future, handles your finances in a professional way, and protects you when it comes to legal issues and taxes. I’d argue for an LLC in the case of almost any author and creative, but what do you think? The comments section awaits.
Image credit: Here.