Four Reasons Creators Should Incorporate Their Businesses
This article was created in partnership with RocketLawyer
For many content creators, what first started as a hobby quickly becomes a full time business. A few thousand views a month turn into tens of thousands and brand deals start to cover your monthly expenses. Sound familiar? Your YouTube channel is no longer a hobby. It is is a media company. And in order for that company to thrive, you need a strong legal foundation. Brands, agencies, and media platforms want to do business with content creators who have a strong legal foundation. Amateur business practices can cause problems for accounting and legal teams and have big tax implications. The goal of this article is to help you do Business with a capital B, and establish a legal framework your growing media company can build upon.
The most important step to setting up this framework is incorporating your business and creating a limited liability company, or LLC. An LLC is considered the simplest and most flexible business structure. There are four major advantages to creating an LLC. Legal protection, tax benefits, data protection, and professionalism. And finally, we’ll set you up with our partner, RocketLawyer for a fast, easy and affordable way to set up your LLC from the comfort of your home.
The limited liability company is well named. It is designed to help you limit your liability. Creating an LLC ensures that you are not personally liable for any damages, debts or lawsuits that result from operating your business. If you are not protected by an LLC, you could be personally liable for damages and debts. This means in a legal battle, without an LLC, your opponent can go after all of your assets, from your house, to your car, to the money in you personal bank account. In life you, want to avoid mistakes that could financially ruin you. Operating without the protection of an LLC is one of those mistakes you do not want to make.
Anytime a company pays you for media services in excess of $600 in a year, they must report that money to the IRS. In order to do so, the company must request W9 form from you. The W9 form is a simple form, that allows you to share your tax identification number with companies. If you are operating as an individual, you must share your Social Security Number or SSN. Your SSN is tied to thousands of personal data points, from medical records to credit cards to bank accounts. While it is common practice for employees to share SSNs with employers, we do not recommend this risk. Instead, when you create a limited liability company, the government will grant you an Employer Identification Number, or EIN. The EIN is a number you can share with companies who pay you instead of your SSN. This greatly protects your personal data.
All organizations incur expenses while doing business. When you create a limited liability company, you may deduct those expenses you incur from your taxable income. This decreases how much you pay in taxes each year. You are not able to do this as an individual. For example, go out to dinner and discuss business with an agent, client, other creator, you can deduct the cost of dinner. Travel 10 miles to get to your studio each day, you can deduct that expense. Buy a hotel room in the location of your next shoot, you can deduct that. Deducting your business expenses could save you thousands to tens of thousands of dollars each year in taxes, greatly exceeding the $100 or so you need to pay to set up your LLC.
If you want to be taken seriously as a business, you need to incorporate your channel as a legal business entity. While some smaller agencies may have the flexibility to work with individuals, larger agencies and massive brands with accounting departments are less likely to be equipped to create vendor relationships with individuals. Instead these larger organizations are required to work strictly with other legal corporations. To make sure you are not putting a professional ceiling on yourself, we recommend incorporating your business. It will give you credibility and likely help you win more negotiations.
The Easiest Way to Create a Limited Liability Company for your Media Company:
We highly recommend working with RocketLawyer to start, manage and complete the incorporation process. RocketLawyer is easy to use, affordable and manages all of your documents on one digital platform.