Do You Need an LLC? (Managing Your Author Income.)

Before I dive into today's Real Talk for Writers, just a quick note: I am not a financial advisor, accountant, or tax pro. Everything I'm sharing today is simply advice I wish I had followed earlier in my career. Please check with your own tax/financial pros to see what makes the best sense for your situation (which obviously varies depending where in the world you live). 

Caveats given, here's the financial advice I wish I could give to myself back in 2017 when I got my first book deal. 

Set up an LLC for Your Author Biz

Do you need an LLC? No.

I never got around to setting mine up until 2022 (maybe 2023? somewhere in there) and it was fine. Nothing bad happened.

Is having an LLC useful? Yes, yes it is.

Do I wish I'd done it in 2017? Abso-freaking-lutely. 

Do I now tell every author who asks me about it to go ahead and get one? YES!

Here's an incomplete list of reasons why having an LLC as an author is useful and (in my opinion) worth the time and expense to set-up. 

• If you do any sort of speaking gig, school visit, or other event where you're getting paid as an author, you'll have a separate EIN (employer identification number) that you can provide on the W9 rather than sharing your SSN (social security number). This alone makes the LLC worth it, so you're not sharing your SSN with random schools, libraries, etc. 
• Once you have your LLC and EIN, you can get a business bank account. This is useful for lots of reasons, including making tax time easier by keeping your business and personal money separate and organized (and yes - this is true even if writing pays all your personal bills, too).
• Though I haven't personally done this yet (so I don't know all the details), I do know that having an LLC can eventually allow you to open a credit card as the business. 
• There are also liability protections with having an LLC. If someone were to sue Author You for something, and you have an LLC, they can only go after the assets under that, not your personal ones (like your house). This is probably the benefit that comes into play the least often, but still worth knowing about.
• If you write under a pen name (as I do!), having the LLC be your pen name (aka Isabel Sterling LLC) can add another layer of protection and privacy. 
• And if you end up making LOTS of money as an author (hurray you!) having an LLC set up allows you to easily switch to an S-Corp, which can have some serious tax-saving benefits. I'm not personally at that stage yet, but it's good to know that when my accountant tells me that it's time to make the switch, I'll be set up for that. 
  
  

But Isabel... HOW Do I Set Up an LLC?

This is going to vary WILDLY depending on where you live. In some states, this is pretty simple and straight forward.

In some states (like NY, where I live), this is complicated and annoying. For reasons I still don't understand, NY requires you to announce your LLC in a physical newspaper multiple times within a certain time period. Such a pain in the ass. 

If you're a tech savvy person who feels comfortable navigating those types of things, go for it. That shit is hell for my anxiety, so I opted to hire a service to take care of all that nonsense (including the ridiculous newspaper requirement) for me. 

I'd much rather pay an expert (which is the same reason I pay for a tax pro) than spend a day (or way more) stressed and irritated and anxious that I've royally screwed something up.

There are lots of options for who to go with. I opted to use Northwest Registered Agents. (Not sponsored or anything, but this worked well for me.) 

Open a Business Bank Account

Ideally, you'll set up your LLC and then open a business account for that LLC specifically.

BUT! Even if you don't go the LLC route (which, again, I highly recommend!) and it's technically a personal checking account, I still recommend you set up a whole separate bank account that is 100% dedicated to your author business. 

This should be the account where ALL author-related income is deposited (advances, royalties, speaking fees, etc.) and also the only account from which you PAY for author-related expenses. This could include:

• Character art
• Bookmarks and other SWAG
• Website hosting 
• Travel for conferences or writing retreats 
• Any books you buy (according to my accountant, this counts as market research!)
• Shipping costs for books or SWAG that you send out
• Any sort of writing or marketing training / courses 
• Coaching is also a business expense in most cases 

When all your business expenses come from one account, it makes doing your taxes (and actually getting to count these items as business expenses) so much easier.

Doing this also lowers your taxable income as an author. For super easy math, say you earn $100k one year as an author but have $20k in business expenses. You pay taxes on the net profit, so instead of paying taxes on the $100k, you're only paying taxes on the $80k. (As always with this, check with your tax pro.)

And speaking of tax pros...

 
Hire a Tax Pro!

You're a small business owner now, and that means taxes get more complicated. And sure, you could spend HOURS trying to do it on your own, but... why?

I recommend that you use your book money to hire an excellent accountant. They will save you more money in taxes than you pay them. And even if it's roughly the same amount of money you have to pay the IRS... the TIME and STRESS that they'll save you is worth it to me.

I've used two different accountants so far. One was local to me (and was only okay) and the other is an online service that specializes in working with small business owners. They were super comfortable with helping me navigate author income AND they make it SO easy. All I have to do is upload all my tax documents, and they do literally everything else. They also send me a video walking me through the return so I understand what's going on. 

The first place (the local one) made me fill out so much paperwork that it felt like I was still doing my own taxes. It was stressful, and I hated it. This new place makes my life so much easier, and the fact that it's 100% online and I don't have to mail anything is priceless. 

Receipt Management / Accounting Software

Don't be like 2017-2021 me and shove all your receipts into a box and then cry about how unorganized it is come tax time.

Here's the process I use for receipt tracking to save my sanity:

1. In my author email, I have a folder called "Finances" 
2. Within that folder, I have 3 sub-folders: Income, Receipts, Tracked Expenses
3.  Whenever I pay for something from my business account, I put that receipt in the "receipts" folder (ground breaking, I know). A lot of places do virtual receipts now, but if I do end up with a paper receipt, I take a picture of that sucker, email it to myself, and file it away under "Receipts."
4. Obvi, income statements for incoming advance or royalty payments go under "Income."
5. This part is the sanity savor: throughout the year (I do this monthly, but if you don't have a ton of transactions, quarterly is fine) input those receipts into your accounting software. By doing this at least semi-regularly, it takes me about 30-60 minutes to get everything updated and prevents me from being overwhelmed come tax-time.
   
   • I currently use the free version of Wave for my accounting/bookkeeping.
6. Once I've uploaded a receipt into the bookkeeping software, I move the receipt into the "Tracked Expenses" folder. That way, I never wonder whether I've already handled the recipe or not. 

I've been following this process for almost two years now and it makes tax time SO MUCH EASIER! My accountant requires that I send over a P&L (profit & loss) statement along with all my other tax docs, and because everything is already input throughout the year, it takes like two clicks to pull together that document. 

Paying Yourself

This is especially important for those of you who write full-time (or your writing income provides for part of your overall family income/budget): by setting up a separate business bank account (or simply a personal account that's fully separate from your personal money), you can then "pay" yourself a "salary" each month.

If you have an S-Corp, I think there's some formal way you can do a true formal salary and run payroll and things, but that's way beyond the scope of what I fully understand. 

For the vast majority of us, you don't need to set up a formal payroll system to pay yourself from your author business. (As always, check with your tax pro!) This can be as simple as having all of your book money get deposited into the business account and then writing yourself a check once a month with the amount you're "paying yourself" to cover personal bills. 

Here's an example of what this would look like (with some "easy math" numbers): Let's say you just got a $50k check from your publisher. That gets deposited into your business account. Then (for easy math), let's say you want to pay yourself $5k per month to use for your personal expenses. 

Each month, you can write yourself a check (or do an electronic transfer) for $5k and deposit that into your personal bank account. Now you can spent that $5k on whatever you need--mortgage, groceries, whatever. The only thing you have to "track" for the business is that you withdrew money for personal use. (The software I use calls this an "owner draw.") 

Now, for taxes, you may also want to have a business savings account where each time you pay yourself you set aside a portion for taxes.

Check with your tax pro for what percentage you should save, but let's say each time you put $5k into your personal account, you also put an additional $1,500 into a business savings account to set aside for taxes. 

Since you've separated business and personal money, you don't need to set money aside all at once for taxes, since the money you spend on business expenses is a tax write-off. If you end up spending $10k of that on a ton of business-related expenses, you're only paying taxes on the remaining $40k that you paid yourself to use for personal stuff. 

Here's how this might look over a couple of months:

• Advance payment: $50k
  • Business checking: $50k
  • Business savings (for taxes): $0
• Withdrawal for July personal money: $5k (+ setting aside $1,500 for taxes) 
  • Business checking: $43,500
  • Business savings: $1,500
• Withdrawal for August personal money: $5k (+ taxes)
  • Business checking: $37,000
  • Business savings: $3,000
• Withdrawal for character art: $500 (no additional tax savings b/c business expense)
  • Business checking: $36,500
  • Business savings: $3,000
• Withdrawal for September personal money: $5k (+ taxes)
  • Business checking: $30,000
  • Business savings: $4,500

And so on.

Again - check with your tax pro for what percentage to set aside each time you pull money out for personal use. This is just an example based on keeping the math simple. 

Final Thoughts

Taking care of your author finances is an important part of building a confident author career. While I am not an expert (and not a financial pro - check with your tax person to make sure this advice works for your situation!), I hope this helps. 

Happy writing,
Isabel 

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