A Publisher's Conversation with Authors: Should you treat your writing as a business?

It is Tuesday. Monday's madness is over, and Wednesday will take us over the hump, so Tuesday it is--for some serious discussion with authors. Tuesday talks mean to address authors in waiting and self-published authors who would like to go a more traditional route or who would at least like to take their steps with a publisher by their side. 

This week we look at whether an author should set up a formal business or simply treat writing as a side gig, That, of course, depends. It depends on an author's income level, long-term goals, and risk tolerance. 

Here’s a breakdown of the pros and cons of formalizing a writing business versus staying a sole proprietor and paying taxes on royalties.

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Option 1: Treat Writing as a Side Gig (No Formal Business)

If you earn royalties from book sales but don’t set up a separate business entity, the IRS considers you a sole proprietor by default. You report book income on Schedule C of your personal tax return and pay self-employment tax.

✅ Pros:

1. No Extra Paperwork or Costs – You don’t need to register a business, file separate tax forms, or pay LLC formation fees.
2. Simple Tax Filing – Just report book income and expenses on Schedule C of your personal return.
3. Fewer Legal Requirements – No need to maintain business licenses, separate bank accounts, or follow LLC formalities.
4. Good for Low or Irregular Income – If you only make occasional royalties or side income, this keeps things easy.

❌ Cons:

1. No Legal Protection – If someone sues you (e.g., over defamation in a memoir), your personal assets (house, savings) are at risk.
2. Higher Self-Employment Taxes – Sole proprietors pay 15.3% self-employment tax on all net earnings, whereas an LLC taxed as an S-Corp may reduce this.
3. Less Credibility – Using your personal name instead of a business name may make you seem less professional for speaking gigs, consulting, or selling courses.
4. Harder to Get Business Loans or Grants – Some opportunities require a registered business.

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Option 2: Set Up a Business (LLC, S-Corp, or Corporation)

If you treat writing as a full-fledged business, you register a Limited Liability Company (LLC) or S-Corp and operate under a business name. You separate personal and business finances and may qualify for better tax treatment.

✅ Pros:

1. Legal Protection (LLC) – An LLC separates personal and business assets, so if someone sues you, your personal savings are protected.
2. Potential Tax Savings –
   • As an LLC taxed as an S-Corp, you can pay yourself a salary and avoid self-employment tax on part of your income.
   • More deductions (business meals, travel, health insurance as a business expense).
3. More Professional Appearance – Having "Jane Doe Publishing, LLC" looks more credible to readers, publishers, and potential clients.
4. Easier Financial Management – A separate business bank account and credit card makes tracking income and expenses simpler.
5. Can Hire Employees or Contractors – If you need an assistant, editor, or marketing help, it’s easier to pay them through a business structure.

❌ Cons:

1. More Administrative Work –
   • LLCs must file paperwork annually.
   • S-Corps require payroll and bookkeeping.
2. Costs Money to Maintain –
   • LLC formation fees ($50-$500 depending on the state).
   • Annual LLC renewal fees ($50-$800).
   • S-Corp tax filing fees if hiring an accountant.
3. Quarterly Tax Filings Required – If you make significant income, you may need to file quarterly estimated taxes.
4. Not Necessary for Low-Income Writers – If you’re making less than $10K-$20K/year, an LLC might not be worth the hassle.

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When Should an Author Set Up a Business?

✅ An LLC is a good idea if:
✔️ You make $10K+ per year and want legal protection.
✔️ You plan to offer more than just books (consulting, speaking, courses).
✔️ You worry about lawsuits (e.g., memoirs, true crime books).

✅ An S-Corp may be worth it if:
✔️ You earn $40K+ per year and want to reduce self-employment taxes.
✔️ You want to pay yourself a salary and separate payroll income from business profits.

🚫 You may NOT need a business entity if:
❌ You only make occasional royalties and don’t expect significant income.
❌ You’re fine paying self-employment tax on all earnings.
❌ You don’t need legal protection (e.g., you write fiction with little legal risk).

Bottom line: Whether or not an author sets up his/her writing as a business will depend upon these factors and more. It is a personal decision and an option, with pros and cons either way, but at least there are some criteria that authors can use in making this important decision.

See more Publisher Conversations with Authors HERE.

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