Best Business Structure for Bloggers - Sole Proprietorship, LLC, and S Crop

Now that my blog is making thousands of dollars per month on a consistent basis, I plan on filing my business in February or March. I wanted to form a business entity because it protects my assets and it opens up single tax advantages. Forming a business can save you thousands of dollars a year in tax benefits.

I researched different business structures for bloggers online and put the information below:

What is the Best Business Structure for Bloggers?

There are 3 structures to consider when forming a business. I talk about Sole Proprietorship, LLC, and S Crop down below. I am not an expert, so if you have any comments please post them down below.

Option 1: Sole Proprietorship

This option is what everyone is when they first start out. You don’t need to file any paperwork to be identified as a sole proprietor. This is essentially the business structure that every kid who wants to mow grass in the summer has formed, without even knowing it.

Pros

• No paperwork to form

• No ongoing costs to maintain entity

• Easiest way to file taxes

Cons

• No liability protection – your assets and your business assets are not separated

• Less tax optimization strategies available

The lack of liability protection is the deal-breaker here. As your business grows, it will become increasingly important to keep clear lines between your business and your family, so I do not recommend staying as a sole proprietor once you have begun to show a track record of income with your blog.

Option 2: Limited Liability Company (LLC)

This is the option I think I am going to use for What Taylor Likes. It strikes a good balance between simplicity and power.

Pros

• Simple to create and maintain

• Low cost to operate, less fees than S Corp

• Less additional filings and formal documents required than the S Corp

• Liability protection

Cons

• Complete pass-through entity. This means that all profits your blog makes are taxed at your marginal tax bracket.

About "pass-through" - Sole proprietors and LLCs are similar in that all income created by the business passes through from the business entity to the business owner (you!).

This makes sense because Uncle Sam wants his taxes. But the S Corp is treated a little differently.

In the S Corp structure, you are able to declare a “reasonable” salary/wage for each employee of the company. Any profits the blog makes above and beyond the salaries of the employees gets more favorable tax treatment and is considered as a “dividend” of the company’s earnings.

I found an example of what this means.....

Emily’s blog earns $100,000 this year as profit. Let’s look at how taxes would work in an LLC and as an S Corp:

LLC – The entire $100,000 will be taxed as marginal income for Emily. That means she will have to pay her income taxes, INCLUDING the 15.3% FICA taxes (7.65% for employee portion and 7.65% for employer portion)

S Corp – Emily elects to take a salary of $60,000. That means that the remaining $40,000 earned by the blog is a “dividend,” which avoids that additional FICA taxes. Only Emily’s salary of $60,000 gets hit with the additional FICA tax.

The key takeaway is that there are subtle differences in how the structures operate that can become important when you start getting into tax optimization strategies.

Ok, so we jumped a little ahead and already talked about S Corps, but I felt it necessary to explain the way wages work in businesses because it can be a driving factor.

Option 3: S Corp

Since we already talked about this one, let me summarize it in the bullet points:

Pros

• Same limited liability protection as LLC

• Ability to save on FICA taxes for any earnings that exceed your salary

• Additional tax benefits that go beyond what LLC’s can offer

Cons

• More costly to set up and maintain

• More paperwork and forms to submit come tax time

• Slightly more confusing to wrap your head around – a professional CPA could make sense here to help explain it all to you

When you first set up your blog, I do not think the increased complexity of the S Corp makes sense. This is because the tax savings only start to be of significant value when your blog is making a significant full time income. Until then I think simplicity is key!

I know you want to get past this section as much as I do, but there’s one secret option that I just have to bring up, because it is next on the list for Start a Mom Blog!

Option 3.5: LLC that elects to be taxed as an S Corp (what I will do eventually)

When you get to a high enough level of earning ($10k per month for example), you can elect for this option to keep the simplicity of the LLC, but supercharge your tax savings with the S Corp.

It only takes a couple of extra forms fill out during tax season, and it’s honestly out of scope for this article. Consult your CPA if this option is appealing to you.

Some people have recommended the following as the best route for a blogger:

• When first starting out, don’t worry about forming a business entity. Focus on building your business and learning all the ins and outs of blogging

• Once you’ve reached a consistent $500 per month, it makes sense to create your LLC

• And when your income has grown so much that you are looking to optimize for tax purposes, consider electing to be taxed as an S Corporation with your CPA

HOMEWORK:

Let me know if you have any comment on this topic.

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