Business entities for bloggers
Turning a blog into a money making business is exciting. And confusing. Most bloggers start blogging as a passion project. You want to reach people, share with people, and help people.
As your blog grows and starts to make money you need to shift focus from just the blog itself and start to pay attention to how you run the business side of your blog. You need to treat your blogging seriously, as a business.
This means deciding on a business entity.
There are several options for you to consider for tax purposes. As always, you need to talk to your financial professional about what is the best fit for you and your goals. These aren’t one size fits all.
But I can provide some basic information so you can become comfortable with the types of business entities available to you. Here are the most common business entities for bloggers.
Business Entities for Bloggers
If you are just starting your blogging adventure (or are just entering the money making phase), there are 3 main small business entities you can consider. Read over these options, talk to your tax professional, then decide which business structure makes sense for you.
Sole proprietorship is what you have if you do nothing at all. There are no forms to fill out, no declarations to make. It is the default entity if you will. Any small business owner that doesn’t elect to be a different entity falls into this category, even if they are just a kid with a lemonade stand.
Sole Proprietor entities are pass-through entities, meaning you claim your income and your expenses on your personal tax return. You do pay income tax on your business earning and pay self-employment taxes. (Schedule C)
Pros of Sole Proprietorship:
- No additional work or paperwork. It just is.
- No costs of upkeep (in terms of business entity)
- Won’t cause major changes to your tax filing
- No requirements to keep business and personal assets separate
- No steps need to be taken to close out the business if you decide not to continue
Cons of Sole Proprietorship:
- No legal protection of your assets if your business comes under attack
- There are fewer tax optimization strategies available to you
Limited Liability Company (LLC)
Limited Liability Companies are the other most common entity for bloggers. These offer legal liability protection. It is legal protection that keeps your business assets separate from your personal assets.
If you are ever sued or face other legal action against your blog and you are a sole proprietor your personal assets could be called in to pay any debts or legal settlements. An LLC takes the business assets and protects you from personal liability.
In other words, your home, your personal bank account, your spouse’s bank account, etc can’t be lost in the case of legal action. It is designed to keep you from being personally liable.
To learn if an LLC is needed for your blog, click here: Do Blogs Need to be LLCs?
LLCs can be taxed as a sole proprietorship, meaning it is a pass-through entity. You pay your taxes on your personal return. You can also opt to be taxed as a partnership or corporation: LLC as an S Corp.
Pros of an LLC
- Your personal assets are separate from your business assets
- There are fewer costs involved to form and maintain LLCs than some other entities
- It can be relatively easy to create an LLC
- You have some options in how your LLC is taxed
Cons of an LLC
- There are forms to fill out and fees to pay for form and maintain LLCs (these vary by state)
- You need to have separate business and personal bank and credit card accounts
- Still a pass-through entity, no changes to how you are taxed
- Need to be closed out if you decide to end the business
S corps are corporations, meaning the corporation has income and expenses. Owners who work for the corporation can be classified as employees, which can offer savings when it comes to self-employment taxes. (Note that S Corps aren’t exactly a business entity like an LLC or C Corp, but they are a designation for tax purposes. So we are grouping it together with the entities.)
These offer similar liability protection to LLCs and are still a pass-through entity in terms of taxes (important for avoiding double taxation). A big difference to your taxes is that you need to file an informational return along with your personal tax return.
To be completely honest, this option really only makes sense when you are making major money from your blog. Like making a full time living off of it money. I’d talk about this with your tax professional later in your blogging career.
Pros of an S Corporation
- Liability protection as with an LLC
- Potential savings on FICA if owners are paid as employees
- Easy to transfer ownership
- More tax optimization strategies available
Cons of an S Corporation
- More forms and costs to form
- More paperwork at tax time
- Need to close out if you decide to end the business.
S Corps can have some real advantages, but it is best to speak with your tax professional about forming and maintaining one. They can be a bit complicated.
Which Entity Should You Choose?
I always recommend you speak to your CPA or tax professional when it comes to making business decisions. They know your full financial story and can best recommend a course of action to take.
I can say there tends to be general progression bloggers take as they build their blog business.
Test the waters and get to know the blogging world as a sole proprietor. There are no extra steps involved and if you decide to stop blogging you don’t need to do anything to close out your business (in terms of taxes).
As you start to grow and make money consider forming an LLC. This offers up valuable legal protection without creating a lot of extra work or confusion at tax time. It is relatively easy to close out an LLC should you decide to stop blogging.
When your blog becomes a full-time business, consider an S Corp. This offers the same legal protection as an LLC but gives you more ways to optimize your tax strategy. As you are generating more income it makes more sense to spend the money on professional financial help with the details of your S Corp.
Talk to your tax professional to make the best choice for you and your blog.
How To File Taxes as a Blogger
Big Tax Deductions for Bloggers
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