It’s natural for aspiring writers to pen their first novel and then, as they begin the query process, to explore whether they need a business structure to support their emerging author identity. The question is a complex one, which depends on your motivation for writing and your expectation for both income and self-made sales.
Always consult with a licensed attorney or accountant in your community who is skilled with small-business matters. The information that follows is not intended to serve as legal or financial advice.
Risks versus Rewards for Author Business Entities
The chief risk related to your author business boils down to one word: complexity. Many authors who write part-time and occasionally sell a story or two will likely find that the additional financial and legal overhead of running a parallel business structure doesn’t make a ton of sense.
Starting even a bare-bones business requires the filing of paperwork with either your state or county governments, with associated fees and usually some requirement for annual-report filing. A local business registration, usually called a Certificate of Assumed Name or something similar, is what people usually refer to as a “DBA.” The assumed business name merely provides a legal pseudonym for an individual person acting in a business capacity—a sole proprietorship. For example, author Sarah Jones may write under the pen name of Susan Smith. A DBA filed with the county clerk as “Susan Smith” provides a legal record that any checks or court filings in the Susan Smith name actually refer to Sarah Jones, and that Sarah Jones is legally responsible for the Susan Smith brand.
Proprietorships don’t offer much legal protection, but they at least instantiate a business name—with which, you may open a Post Office box, obtain a custom domain name, and create a website and email account.
Creating a business entity isn’t the same thing as obtaining a business license. Some jurisdictions require anyone engaged in commercial activities to obtain a license from the city or county government.
This is where the chief reward for an author business entity comes in. Even a DBA offers at least a paper-thin wall of separation between your real-life identity and your author identity. When your name gets “out there” among an ecosystem of unknown readers, you cannot control which readers may fixate on you or your family. Making it harder for people to track down the place you live proves a common-sense measure that will prove useful in the rare but not unheard-of moments when angry or emotionally compromised readers cross the line.
Levels of Business Complexity
For true hobbyists, either doing nothing or filing a DBA makes sense. If you sell a story or two each year to a lit journal or an anthology, there’s probably no need to get crazy. Most writers, in fact, forego business structures altogether—a question you should discuss with your family attorney or CPA. For typical low-volume, low-exposure fiction writers, your potential legal risk is very small and your income is often low enough to wrap into standard hobbyist income-and-expense categories on your personal tax returns.
But the use cases for more complex business structures aren’t exactly rare:
- Authors who prolifically self-publish their books and then sell them in-person at various craft or writing events will likely benefit from a business banking account and a federal Employer Identification number (the business equivalent of a Social Security number). A FEIN plus a commercial bank account opens the door to a merchant card-processing account, which is handy to complete in-person sales (or sales on your website!) when cash isn’t an option. To obtain a FEIN and to appropriately segregate your writing income from your personal finances, a business entity like a limited liability company or even a subchapter-S corporation may make sense. LLCs and S-corps are rare for small-scale authors, but full-time authors who are managing their own sales may find this approach beneficial.
- Authors who write subjects that may incur lawsuit risk—independent investigative journalists, unauthorized biographers, memoirists—may benefit from insurance coverage to protect against financial ruin should you be sued for defamation or invasion of privacy. This level of risk usually also entails a business structure to further isolate the writer’s personal assets from professional liability. This type of writer absolutely must work with both an attorney and an insurance broker to accurately estimate relative risk and coverage levels.
- Authors who write full-time and live on the proceeds probably need a business entity to ensure that author earnings are correctly accounted for. As a rule, you must pay yourself a reasonable salary, and pay taxes on what you pay yourself. Full-time, for-income writing isn’t all that common nowadays, but if that’s your reality, you may run afoul of tax authorities if you don’t properly account for, and allocate, your revenue between the business and your personal income.
What Do You Need?
Although the specific form and degree of business structure depends on your conversations with your attorney and your accountant, prepare for that discussion by considering the following use cases:
- Privacy Protection. Authors who publish material should build a big, beautiful wall of separation between their personal life and their author identity. Whether this wall comes from merely writing under pseudonym, or filing a DBA, or establishing a more formal business entity like a proprietorship or an LLC or an S-Corp, is a function of your goals and expected visibility and revenue potential.
- Marketing. A specific brand around an author persona protects your writing brand and facilitates future sales and networking. Although you don’t need a business structure to establish this brand, filing a business entity in the name of the author persona at least protects against encroachment within the scope of your state or county. (Business licensing authorities won’t allow substantially the same business names; it’s first-come, first-served, generally.)
- Personal Retail Sales. If you regularly sell your own books, as many self-published authors do, then at a certain point, a business structure that supports a commercial banking account may make sense—at the least, to process credit cards and segregate any sales tax you may owe to your state or local government. (Authors must assess applicable sales tax when they sell their own books, even though most don’t.)
- Insurance. Although it’s rare, some authors may benefit from certain forms of liability coverage.
- Salary reporting. A full-time writer who lives off his writing-related income must properly account for revenue, expenses, tax liability, and the salary he or she must pay to himself. In most cases, a business entity facilitates that work while offering the most favorable tax implications, although there are quite a few substantially different strategies that may work for author compensation.
The Most Important Rule
… is don’t fret. Business entities—if they make sense for you at all—don’t need to be established as soon as you decide to write. If your writing as a non-business hobbyist blooms, re-consider your options. Given that most hobbyist authors never create a business entity, it’s not something to stress over before you’ve finished a manuscript.
Consider your goals and your most likely financial trajectory as a writer then discuss options with your attorney and accountant.