|Der Gemeindeschreiber ("The Community Writer")|
by Gemälde von Albert Anker, 1874
public domain (Wikimedia Commons).
Back in 1994, I was working for a small computer consulting company, and I was shopped out to consult on a "Star Wars" project for a Very Big Client. After a year on the job, which was my minimum commitment to the consulting group, the client & I realized that it would be a win-win for us to cut out the middleman. I would get a much higher hourly rate—but still not charge as much as the middleman was charging to hire me out to them.
However, the client required that they be invoiced by a corporation, not an individual, so I found a corporate lawyer (no LegalZoom.com in those days) who practiced in the county where I was living at the time, and I sat down with him in person to discuss the various small-business corporate options. He is now an owning partner at his firm, and he relocated to the state capital years ago, but he has remained my corporate lawyer to this day. Even though I could save a couple hundred bucks a year now to do my own annual corporate filings, it has been worth it to keep him on tap for questions and for handling other, non-corporate issues that have come up.
To get precise definitions of Sole Proprietorship, S-Corporation, Limited Liability Corporation (LLC), and any other small-business options that I may have missed off the top of my head, I would suggest that you Google the terms; that sort of thing is way above my pay grade! And I do not wish to mislead anyone.
Per my lawyer’s recommendation, I established System Support Services, Inc. (S3I) as an S-Corporation because I wanted my husband to be an equal co-owner for survivorship purposes. The tax implications are that the net value of all corporate income and expenses are passed through to the owners’ individual 1040 form each year. The S-Corporation itself does not pay tax.
In the early days I had hired a freelance CPA to keep my corporate books and do my business tax filings (not having to pay tax does not mean it doesn't have to file!), but after a few years he ditched his freelance business to become a corporate CPA. By that time, aided by a basic accounting class I'd taken several years earlier, I was familiar enough with the process that I was comfortable with buying Quickbooks to keep my corporate records, and Turbotax Business (not Turbotax Home & Office, though that =might= do these days for a freelance writer) for my annual S-Corp tax filings.
That first day in 1995 when I met with the lawyer to decide which type of corporation S3I would become, I had not yet sold any manuscripts but knew I was getting close to landing a contract, so I asked whether I would be able to funnel non-consulting income & expenses through the corporation too. The answer is an emphatic YES.
For a writer, setting up a corporation is entirely optional, but for me the main attraction is that it avoids the whole “hobby” implication during years when sales are, shall we say, less than stellar but expenses remain astronomical.
Another attraction, as an indie publisher, is that KDP, Nook Press, Kobo, Createspace, IngramSpark, and all the other places where I publish my work have my corporate tax ID on file, not my Social Security Number. I am far less twitchy about the risk of data breaches in that case! And it causes those companies to generate 1099-Misc statements made out to the corporation’s name, which further supports the business’s viability in the eyes of the IRS.
You do not have to be incorporated in order to set up your own imprint, however! That will be the subject of next week's lesson… and the process is a lot easier than you might think.
***All this month, you are invited to...
— Add Kim as a favorite author on Amazon.com
— Follow Kim on Twitter
— Add Kim to Google+
— Subscribe to Kim's YouTube channel
— Leave a comment on any page of The Maze, especially if you have done the Amazon, Twitter, and/or YouTube follow
...and each action this month is good for one chance to win an e-book copy of Morning's Journey. Please enter often, and good luck!