How to set up your LLC and business bank account
I always recommend that my clients set themselves up as a business by filing the paperwork to start an LLC. There are many advantages to creating a business for your writing and publishing. Some of them include…
- An LLC separates your business (book) income and expenses from your personal income and expenses.
- If someone tries to sue you, they can only take the assets in your business, not your whole life. Why would someone sue you? Why not in this day and age! What if you had a book signing event and someone slipped and hit their head on your book table. They’ll sue. Don’t think they won’t. When you have an LLC, you protect your personal income and property.
- You can write off stuff. Lots of stuff (but be sure to check local and national laws about what counts as a write off these days). Some examples might be:
- You need a new hard drive or computer (your tool to write)–write off!
- You want to hire an Author Coach to guide you through the process (wink, wink)–could be a write-off!
- You need ink and paper to do your work–write off!
- You meet with a potential publisher, artist, coach, interviewee for coffee or lunch–part of that is a write-off!
- You pay to have your book printed–write off!
- You want to visit Ireland to do scene research, interviews and take photos for your book–could be a write off!
- You only have to pay taxes on the income you make after you’ve deducted your expenses!
- When you register to distribute your books online (through Amazon, Barnes and Noble, Smashwords, iTunes, etc.) you have to fill out a pay profile so the company can send you your sales/profits/pay. They ask for either a business identification number or your social security number. If you have a business and can provide a business ID, then you can keep your social security number private and protect yourself from identity theft.
There are, however, some disadvantages too. It’s only fair that I list them.
- A little expensive and time consuming; forms to fill out, fees to pay, accounts to open…it can feel overwhelming.
- You have to pay your own social security and income taxes–so instead of having 7% of your paycheck go to Uncle Sam, you’ll have to budget for 15%.
- Keeping records and paying taxes will be harder–you have to fill out a Schedule C and have good records of your income and expenses.
Do some research for yourself and I’m sure you’ll find, as I did, that the best thing you can do for your writing is turn it into a business. You’ll be glad you did!
How to Set Up Your Business:
Follow these steps in this order and you should be able to set up your own business online. If you find this too difficult to navigate, please contact a reputable lawyer who can take care of incorporation for you (for a fee of course!)
Get started on this now as it will take some time and there are different organizations to deal with.
1. Choose a Name Usually something with your name in it (its easier to find a business name that hasn’t already been used if you use your name). Your state will allow you to search to see if your business name is already in use. Be sure to choose a few variations of your business name in case your first choice is taken.
2. Register Your Business with Your State Go to your state’s secretary of state website to register and pay the business fee. (www.sos.state.yourstate.gov –for example www.sos.state.co.gov) (you don’t need a lawyer to set this up so save yourself some money). They will have some checklists for you to go through where you search to see if your business name has already been taken. If so, change it a bit and search again until you have a unique name to register. Choose the LLC option and then just follow their prompts. There will be a fee that you pay to the state. You may have to renew this registration each year.
3. Get an Employee Identification Number (EIN) from the IRS This is important because you don’t want to use your social security number as an identifier when you set up payments with your book distributors. Simply visit www.irs.gov and click on the link for getting your EIN. This is free.
4. Set up a Business Bank Account You want to keep your business expenses separated from your personal expenses. The easiest way to do this is to open a bank account dedicated to your business. (You will need to accomplish steps 1-3 above before you can set up an account). Be sure to get checks and a debit card to make banking easier. You can also use this account for direct deposits from Paypal, Amazon.com, Smashwords.com, etc.
Now You Have a Business!
Be sure to order business cards with your name, business name, books you’ve published and contact information (including your social media sites).
Remember, you will need to file a “Schedule C” with your state and the IRS come tax time, and every year you will have to renew your state business license as well.
*disclaimer: I am not a CPA or a lawyer, nor does this blog provide any professional advice about how to incorporate or file your business documents. FOr professional advice on how to incorporate a business, please contact your lawyer or CPA.
Caution: If you need help, use your local small business administration. Please don’t pay an internet company to file your papers for you. You will end up paying a lot more than you need to.
Wall Street Journal http://guides.wsj.com/small-business/starting-a-business/how-to-start-an-llc/
Small Business Administration: http://sba.gov