What type of business should you have (sole proprietorship, LLC, S-Corp, something else) as a blogger? There really isn’t a single answer to that. It depends on things like your risks, personal assets, how much money you make, and what your goals are for your business.
We’ll assume you’ve decided that your blog is a business and not a hobby. Generally, if there’s a profit motive behind your blog, it is a business. The fact that you’re thinking about this is good because it indicates that you’re treating this like a business.
There are several ways that you can set up your business. Making the right decision can be very important. We’ll take a look at all the different business designations, pros and cons of each, and then talk about action steps you can take to evaluate the best option for you.
- The common business types for bloggers
- Pros and cons of each business type for your blogging business
- Action steps to help you decide whether to create a business entity
Before we go any further: DO NOT take any of this as tax or legal advice. This is intended only to educate you about how different business structures work and the general implications of each. For specific advice related to your unique business and financial situation, you should seek out your own legal and professional experts who can advise you.
Finally, this article is about blogging in the United States. Other nations have different structures, rules, advantages and disadvantages and much of this may not apply outside the U.S.
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The common business types for bloggers
One thing I should make clear to begin with. Your blog itself is not a business. Your blog is an asset or a tool to help your business make money.
If you’ve committed that this is a business for you, you are already running a business regardless of whether or not you have filed any legal paperwork. By default, you are a sole proprietor, someone who is simply doing business for themself.
You may choose to register as a different type of business. In most cases it’s much simpler than you might realize. We’ll take a look at the different business entities. This is an overview. It’s not meant to be an in depth analysis.
Here’s how the IRS defines it:
A sole proprietor is someone who owns an unincorporated business by himself or herselfInternal Revenue Service Sole Proprietorships page.
Here’s what it boils down to: If you’re making money on your own with your blog, not doing it as an employee, and you haven’t incorporated, you’re running a sole proprietorship. Even though it’s only you, it’s still a legitimate small business.
A sole proprietor pays taxes for their business via their personal income tax return. Expenses and income are listed on a form called Schedule C and business profits are then considered to be taxable personal income.
In general, a sole proprietor doesn’t have to register their business in any particular way. There are a lot of best practices that are a good idea to follow but are not required. Some exceptions may apply with state and local governments if they require things such as a business license or sales tax license.
Once again we’ll rely on the IRS:
An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits.Page 2 of IRS Publication 541: Partnerships
An over-simplified way to put it is a partnership is a multi-owner version of a sole proprietorship. Essentially if you have two or more people who choose to go into business together but have elected not to incorporate or create an LLC together, it’s a partnership.
A partnership is a bit more of an intentional business structure than the way a lot of sole proprietors handle it. That’s because there needs to be some kind of agreement between partners. Who is responsible for what part of the operating costs? Who gets what part of the profits from the business?
Rules vary by state, but many states require partnerships to be registered.
Income taxes are paid on the profits, by percentage based on what percent of profits the partners receive. It should be noted that income taxes are due based on the profits of the company, not on how much money is physically received by the partners.
Limited Liability Company (LLC)
A limited liability company is a formal business entity. Investopedia calls LLC’s “hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.”
But what exactly does that mean? An LLC is like a corporation in that it exists separate from its owners. It’s an entity by itself. From a tax perspective, the LLC is more like a partnership or sole proprietorship, as profits are taxed as personal income for the owners. Owners generally use the same tax forms as they do as a sole proprietor or partnership.
An LLC owner is called a member. If it’s just one person who owns it, it’s a single member LLC. It’s possible to have multiple owners, and the tax burden is spread out among them based on terms of ownership.
Generally the members work within the LLC, can receive all or part of the company profits, but cannot be put on payroll for the company.
Each state has different rules for creating an LLC. Some states have an option for an LLP (Limited Liability Partnership) that has different rules for how the company is managed. We won’t dive into all the details here as this is mostly an overview.
A corporation is a formal business entity that completely stands alone from its owners (or share holders).
For instance, according to Upcounsel, “Each member (of an LLC) has a claim to business assets.” Meanwhile, the corporation directly owns its assets, shareholders do not have a direct claim to those assets. It’s only an indirect claim in relationship to their stake in company profits.
Another big difference comes in how an owner is compensated for their work. An active owner’s compensation doesn’t reduce the profit of the company, as the owner is not on company payroll. To be compensated for their work in a company, a shareholder must be paid via payroll. That payment does reduce company profits. The shareholder may then have a stake in the profits that are calculated AFTER payroll costs.
The tax structure is different as well. An LLC’s member pays social security and medicare taxes (in the form of self-employment taxes) on the entire profit of the company. A shareholder employee only pays those on the salary received, not on dividends (their share of profits).
Tax difference between corporate types.
There are two different types of corporation, and each is taxed in a different way.
An S Corporation (also known as Subchapter S) is a pass through entity. That means that profits for the business are taxed as personal income for shareholders.
If you own and operate an S Corporation, your pay for your work is as a W-2 employee of the corporation. Profits, which take into account your pay as an expense item, are then taxed as a dividend, or other income, on your personal tax return, whether or not you actually take those profits out of the company.
A C Corporation pays its own income tax, known as a corporate income tax. The tax is based on company profits.
Like an S Corporation, if you own and operate a C Corp, you’re paid on payroll. That pay is expensed thus reducing profit. However, instead of profits being taxed as personal income, they’re taxed at the corporate income tax rate of 21%.
There’s also a difference in how the profits are handled for your personal taxes. With an S Corp, all profits impact your personal taxable income. With a C Corporation, the only time you’re personally taxed on profits is if you take an actual distribution from those profits.
That does create a double taxation scenario for C Corp shareholders if they do take dividends. Those profits were taxed once at the corporate rate, and then taxed again at the personal rate. However, if you choose to leave the profits in the company there’s no personal tax on that profit.
Other business types and terms
As bloggers, most of us fall under either a sole proprietorship, an LLC, or a corporation. However, there are a number of other business types and business terms. Some terms are confused by a lot of people to as business types. We’ll take a quick look at some of these.
Non Profit Organization
A company that exists for certain purposes for the public good can be structured as a non profit organization. Profits for such a company are not taxed. Profits can’t be distributed to owners, since a nonprofit has no owners. Nonprofits are often supported by charitable donations from supporters. Blogs can be operated by nonprofit organizations, though generally the motivation for the blog is related to the mission of the organization rather than a profit motive.
There’s a fairly new type of business structure known as a B Corporation. It’s sort of a hybrid between a nonprofit and a corporation. A B corporation needs to be certified by a third party for having a mission that benefits the public good as much as or more than it benefits shareholders. A B Corporation’s profits are still taxed and dividends can still be distributed to share holders.
As of the last update by UpCounsel, Twenty nine states had some form of benefit corporation designation, with fourteen more considering it.
Independent contractor is not a business entity. It’s more about distinguishing between employees and businesses who provide a service.
There are two ways you can have someone do work for you: You can hire an employee or contract with a business. When you contract with a business, that business is an independent contractor.
If you as an individual have an independent contractor relationship with a company, it simply means that you’re providing the service as a business and not an employee. That means employee protections and regulations do not apply, but it also means the business cannot control the work of a contractor like they can an employee.
When monetizing your blog, your relationship with other parties is as an independent contractor. That’s true whether you are a sole proprietor, have created an LLC or you’ve incorporated. It only means that your role in the contract is as a business and not as an employee of the other company.
Doing Business As (DBA)
A DBA is not a business type. It simply refers to your business name.
For example, my business name is Four Dimes Ltd but my blog name is Your Content Business. If I wanted to use my blog name to identify my business, I would create a DBA.
The same would be true if you wanted to create a business name that is different than your personal name as a sole proprietor. That business name would be known as a DBA or Doing Business As.
State and local governments often have different requirements and regulations about using a DBA, so it’s good to get to understand them. Some banks may want you to have a registered DBA if you want to associate your business bank account with that business name.
EIN (Employer Identification Number)
An EIN or Employer Identification Number is a sort of business version of a Social Security Number. It’s a specific identifier registered with the IRS for a business.
Registering an LLC or incorporating your business will require you have an EIN. Sole proprietors can get an EIN as well. To do so, one must operate mainly in the United States and have a valid tax identification number (a Social Security number, ITIN or another EIN).
As a sole proprietor, your EIN will be associated to your Social Security Number and to your personal legal name. It can also be associated to a DBA.
State and Federal definitions mean the differences between LLC’s and corporations aren’t absolute.
In general, a single-member LLC is taxed a lot like a sole proprietorship and an LLC with multiple members is generally taxed like a general partnership. You can’t technically employ yourself with your LLC but you could if you incorporate.
Then again, just to make things confusing, your LLC could be taxed like an S Corp OR a C Corp. And you can put yourself on the payroll of your LLC in certain circumstances.
That’s all because of how the involvement differes between the Federal government and various states.
Your particular business entity structure is something that happens with the state. Each state has its own rules and laws about how to register an LLC or to incorporate a corporation.
But when it comes to how Federal taxes work, the government really doesn’t have a different treatment for LLC’s. By default, an LLC is no different than a sole proprietorship or a general partnership.
However, an LLC has the option to be taxed like a corporation. If you create an LLC you can choose to be taxed as an S Corporation or a C Corporation. Doing so means that your employment status and company profit taxation are all treated as though you had incorporated.
This is of course a very high level overview of how that works. For your particular business, it really is best to consult a legal expert who can walk you through all the details and nuances.
Pros and cons of each business type for your blogging business
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We’re going to walk through some general advantages and disadvantages of the different business types. This is not tax advice but instead a very general overview of how things may be different depending on if you incorporate, register an LLC or remain a sole proprietor or general partnership.
Sole proprietorship or partnership.
We’re going to lump these two together with the idea that the main difference is whether it’s just you who runs your business or whether you’re doing this in partnership with someone else.
A sole proprietorship or partnership is often just easier. You don’t have to deal with annual reports or minutes or anything like that. There’s far less regulation.
Everything that belongs to your business belongs to you (or you and your partner(s)). Business assets are your assets.
That also means that business liabilities are your liabilities. If something happens where your business has a debt it’s unable to pay, creditors can go after your personal assets. When you are doing business as you (or your DBA), everything that is yours is in play.
Limited Liability Company (LLC).
An LLC is in some ways a part of you but in some ways separate from you as an individual (or from you and your partner(s).
On the one hand, taxes are the same as if you hadn’t done anything. You still have ownership of company assets. At the same time, the company liabilities are strictly the company’s liabilities.
This is the main reason a lot of people may choose to create an LLC. If something unfortunate would happen and your business cannot meet its obligations, creditors cannot go after your personal assets.
That’s why it’s called a limited liability company. Your personal liability for what your company does is usually limited to whatever your investment into your company was. Business liability is usually not transferred to you personally.
That limit is not absolute. If you treat your business as though it’s not independent of you, you can lose protections. There’s a term called “piercing the corporate veil.” If a creditor can show that in practice your business is not operated separate from you individually, they may have a claim on your personal assets.
Things that can blur the lines between you as a person and your company include things like: Failure to keep a separate bank account for your business or conducting business with your personal business account, not keeping appropriate records or failure to maintain required annual or quarterly reports per state or local regulations. Fraud or intentional wrongdoing by you as an individual can also remove the protections.
Some prefer an LLC structure because of the flexibility with taxes. One can choose to have their company taxed as an S Corp or C Corp but then change that election in later years if circumstances change.
Corporations (or being taxed as a corporation).
There’s a lot about how corporations are set up, what kind of stock can be issued, how it all relates to investors, and things like that that can influence whether you wanted to create an S corporation or a C corporation. A lot of that gets beyond the scope of this article.
A lot of times the reason a blogger might choose to incorporate is because how the tax structure is different. Some may choose to create (or have their LLC taxed as) an S Corp because they can reduce much of their self-employment tax liability.
Others may choose to create a C Corporation for tax reasons as well. The corporate tax rate may be lower than they’d pay under their personal income tax bracket. Maybe they prefer to keep profits in the company and not have to pay taxes at that time.
A corporation also protects against personal liabilities in many of the same ways that an LLC does. However, it also has the same dangers of having the veil breached by failure to separate personal and business affairs.
When would a nonprofit or B Corporation be a good fit for a blogging business?
I personally struggled with this question when pondering a ministry related blog. The benefit of creating a nonprofit was that it could be supported by charitable donations. The flip side was, having been a business manager for a nonprofit, some of the reporting, fundraising and other aspects of operating a nonprofit could have distracted from the mission.
The B Corporation idea is an intriguing one as it allows a for profit company to operate with a focus on a mission. The reason this is important is that as a corporation, the company is required to operate for the benefit of shareholders. If somewhere along the line the good of the public or the positive mission of a company were to conflict with the good of shareholders, management is required to choose the good of the shareholder.
The B Corporation concept allows a company to determine that there’s a particular mission or benefit to others that is as important or more important than the benefit to stock holders. That gives management more flexibility to choose their course of action.
However, as an individual blogger, I didn’t feel like there was a practical benefit in creating a B Corporation. As being the only stock holder of the company, I can decide what’s best for my stockholder (me). There’s not a conflict if I decide to focus more on a social cause than on profits.
This may become more of an issue if operating a partnership or registering/incorporating a business entity with multiple owners.
What about creating a DBA or EIN?
In some ways, these are separate decisions. You may choose to brand your business as something different than your or your business’s legal name. A DBA may make sense.
This is my opinion only, but I do believe obtaining an EIN is at least a very good idea. Doing so allows you to create a business bank account. It also allows you to tie your business relationships around your EIN rather than giving out your personal Social Security Number.
For your personal situation, it’s always best to find a legal expert who can advise you directly.
Action steps to help you decide whether to create a business entity
I think in order to make a good decision, there are a few things you need to do. Part of it is asking some questions of yourself. Part of it is taking certain actions.
1. Figure out your goals
What exactly are you trying to accomplish with your blog and other business activities. Is this going to be a little bit of income? Or are we talking about something substantial? The more you earn, the more the tax implications matter.
Is this just a small side hustle and that’s all it ever will be? Are you full time with your blogging and other content, or do you plan to be? Will you ever sell your blog? These are all things that might help you determine how you want to structure your business.
2. Identify your liability risks
Liability protection doesn’t doesn’t mean much if you don’t have much liability. It also may not mean much if you don’t have any assets.
For most of us, blogging is something you can bootstrap pretty easily. We buy a domain, we pay a little for hosting, maybe some plug ins. Most of it is just writing blog posts, possibly marketing the blog, and figuring out the best ways to monetize.
That usually means there’s not the same debt concern as a lot of business startups have. If the business doesn’t make it, it’s not like you took out a loan or anything to get it off the ground, right? At least not unless you shelled out a bunch of money to buy a blog or domain name.
However, there’s always a risk for content creators. People can fabricate claims of copyright infringement. Sometimes using images or media that you thought was covered and legal but that really wasn’t can lead to issues. The more litigious society becomes, the more important it is to understand the risks.
3. Know when to get help.
One of the dangers as a blogger just getting started with making money, we’re used to operating on the cheap. It usually doesn’t cost much to run a blog and there are so many great free tools. Unfortunately it makes it tempting to do it yourself on other things that sometimes it’s not such a good idea.
Sometimes you get more back when you have a tax pro helping you with taxes. Or maybe you could have made more money by creating content than spending all that time researching taxes and trying to do it yourself.
The same can be said of creating your business entity. There are a lot of so-called easy ways to do it yourself. It can be great until you discover all the things you didn’t know.
There may be a point where it makes more sense to get a tax professional to advise you on whether or not creating an LLC makes sense. It may be better to have a business lawyer walk you through all the steps to make sure you haven’t missed anything.
This is where it’s really important to know yourself well. Is it really saving that much to try to do it yourself? Or is it better to find a good business attorney or tax professional who can walk you through these things?
What I chose personally and why:
I started my blogging business as a sole proprietor. With the first dollar I spent, I was keeping records. I did decide to get an EIN both to get a business bank account and to keep my personal social security number out of as many business transactions as possible.
As my first blog became profitable, I decided to create an LLC and have it taxed as an S Corporation. I did do quite a bit of the work myself. Looking back I wish I had hired an attorney to walk me through it. I used a registered agent service and filed the tax election form myself. Everything turned out okay, but the time I spent researching would have been far more profitable just creating more content.
I chose to be taxed as an S Corp for two reasons. One, I knew my profits could exceed what a reasonable salary would be. This meant that I could save money by lowering my self-employment tax liability.
The second reason is more personal. I found a lot of value having myself on payroll both from a personal standpoint. As my wife consider a vacation home, I felt that there’s a little more value from a financing standpoint to the wage history than relying on self-employment records.
In the end my decision process was deeply personal. I’m sure yours will be as well. That’s why I can’t tell you whether you should create an LLC for your blogging business. All I can do is give you information about business structures and some of the factors that may become part of your decision process.
I hope that this has been useful for you. The most important answer is: Make the decision that fits best with your personal reasons, your goals and your business.