To Be or Not To Be... A Legal Entity

The book's nearly out the door, which means there are visions of agents and editors dancing in my head. And dollar signs. Big dollar signs.

So I've been doing a lot of research into the question of whether or not to incorporate my writing business. I still haven't made up my mind yet, because it's a complicated question, peppered with lots of incomprehensible little phrases like "2.7% SUTA on first $8500, until adjusted."

Basically, it boils down to this: if I make a lot of money (and, hey, I plan to, right?), forming a corporation can help me bring home more of that bacon. If I don't (and most writers don't), the initial investment in filing fees and assorted minutiae will be essentially wasted.

So, take the plunge or stay on dry land? Still waffling, but here are some of the issues at hand:

Limited Liability

This is one of the major reasons most people form corporations, to protect their personal assets from any lawsuit against their business.

Sadly, for a writer of fiction, this limited liability is largely illusory. It wouldn't protect me from being sued for my own wrongful acts, which means if someone came after me with a plagiarism suit (and I hope it goes without saying that such a suit would be pure nonsense), the corporation wouldn't help. They could attack me, and my personal assets, directly.

It would make sense, though, if I were going to be writing a lot of technical manuals for companies whose legal squeaky cleanness I didn't want to be responsible for. Or if I planned to hire lots of employees, such as a secretaries or research assistants. My limited liability would prevent me from being personally sued for any of their wrongdoings while working under the umbrella of my corporation.

Tax Savings

This is the real meat of the question: will I get taxed more or less if I incorporate?

The short answer is, it depends. There are several types of companies I can form, and they each have their own pluses and minuses with regards to the tax code. How much I can save (or, if I bungle things up, lose) is largely dependent on whether I choose to form a C Corporation, an S Corporation, or an LLC, all of which I'll explain in more detail in my next post.

It's also dependent on how much I make. For a writer, this is a pretty hard number to figure in advance, but it'll have deep implications on my bottom line. If I'm not going to make a significant income, I'll be better off not incorporating. (I'm thinking the threshold might be as low as $40K, though some articles I've seen online put it much higher.)

Odds and Ends

How much are filing fees? Do I have to carry worker's compensation insurance? What weird little addenda in the tax code apply to me?

This is the place where the question of whether or not to incorporate begins to get rather sticky and burdensome. Where it seems like it'd be easier to just throw up my hands and take a tax hit if that's what I have to do. This is a hard part to push through, which leads into our next area of interest:


It's work, a lot of work, getting all this information together and acting on it. Worse, if I screw up some little detail there may be serious legal or financial penalties. Still sound like a fun challenge?

The bright side, in a weird way, is that some of this work is unavoidable. A self-employed person is going to have to dig into the tax code and file quarterly returns anyway. So I might as well just go the extra mile and incorporate if it's going to save me some cash.

And those, in a nutshell, are the issues I've been wrestling with over the past weekend. It's daunting, but a little fun, too, and a welcome break from worrying whether my book will ever be the masterpiece I envisioned before the whole mess was down on paper. Tomorrow I'll discuss types of companies, and tell you which one I've decided (tentatively) to form.