2. Choose Your Blogging Legal Status
Once your blog is beyond the hobby stage, you’ll want to give some serious thought to choosing a legal status for your blogging business. The most common for bloggers are sole proprietor, partnership, and limited liability corporation (LLC), but becoming an S-Corp or C-Corp are also options.
For IRS purposes, you don’t have to be profitable to declare your blog a business. You can have a business loss for 4-5 years before they begin getting suspicious, and after that time you may have to classify the blog as a hobby if you’re not making more than you’re spending.
You don’t necessarily have to register as a business entity to get the blog started either, although as noted above, it can be useful if you know from the start that you want to make substantial income from blogging.
If you’re not sure, it’s okay. If at some point you want to begin taking deductions for expenses, and/or adding partners or hiring employees, you can then consider specific legal status options.
A sole proprietor is the most common legal entity for small, home-based businesses such as blogs. In most cases, you simply go to your local county filing offices and fill out a DBA (Doing Business As) form.
Check with your state attorney general’s office as well for any forms that need to be filed with them. As a blogger, you will not normally need a sales tax license, Employer Identification Number (EIN), or other licenses and forms.
A Limited Liability Corporation, or LLC, is another popular business entity form for bloggers, due to extra legal liability protections and tax filing options. The limited liability aspect of this business entity type can sometimes protect your personal assets, such as your family home, from being subjected to business forfeitures.
Since this is considered a “passthrough” company for tax purposes, reporting can be very similar to reporting as a sole proprietor. An LLC can opt to be taxed as a partnership, C-Corp, or S-Corp as well, and those decisions are best made with the help of a professional tax attorney.
Setting up a company as an S-Corp is appealing to some because it can potentially provide additional tax benefits. Essentially, you are allowed to pay yourself a salary that is taxed at your normal rate, and then pay yourself additional profits through the company as dividends. Dividend income is often taxed at a much lower rate, helping to reduce your overall tax obligation.
However, this is a complicated tax entity that should not be chosen lightly because doing it wrong can get you into a lot of legal trouble with the IRS. Always consult with a professional tax advisor or business attorney first.