If you run your blog as a business, one of the important decisions you must make early on deals with choice of entity. This is an important business decision for any business, not just bloggers, and it can affect how you are taxed and also your legal liability.
As a CPA, I do a lot of (legal) tax planning with my clients so that they can keep more of their hard earned money in their own pocket. When I meet with people who are going to start a business or who have recently started a business, choice of entity is one of the most important issues that we discuss.
Although I am specifically referring to U.S. entities, some of the concepts discussed will also likely apply to entities in foreign jurisdictions as well.
I list below 5 of the most common business entities that you might consider for your blog.
- Sole Proprietorship
A sole proprietorship consists of an individual who runs an unincorporated trade or business. This appears to be the form of entity most commonly used by bloggers.
A sole proprietorship is the easiest type of business to set up and manage. Sole proprietors don’t have to file a separate entity tax return for federal income tax purposes, which may help minimize professional fees.
The big downside of using a sole proprietorship is that there is unlimited liability for all business actions and debts. Having limited liability could sure come in handy if you were ever sued. One way to minimize liability while keeping the tax simplicity of a sole proprietorship is to form a single member LLC, which is discussed below.
- C Corporation
A C Corporation is an incorporated business entity with a legal status separate from that of its owners. A shareholder’s liability is generally limited to his or her investment in the corporation. Another advantage of a C Corporation is that it can raise capital by issuing stock.
The big disadvantage of a C Corporation is that it is subject to double taxation. For federal income tax purposes, the corporation files Form 1120 and pays tax on company profits. Any dividends paid to shareholders are also taxable to the shareholder, resulting in 2 layers of tax.
Many businesses today, including blogs, choose not to operate as a C Corporation because of the double taxation issue. There are other legal entities that provide limited liability without subjecting the company and owners to double taxation. Additionally, C Corporations tend to have high compliance and administrative burdens.
- S Corporation
Similar to a C Corporation, an S Corporation is an incorporated business entity with a legal status separate from that of its owners. A shareholder’s liability is generally limited to his or her investment in the corporation.
However, for tax purposes, an S Corporation is treated as a pass through entity. This means that there is generally no entity level tax (although there are exceptions), and all profits and losses flow through to the shareholders to be taxed at the shareholder level. Shareholders are taxed on earnings even if no distributions are actually made. Form 1120S is the federal income tax return filed for an S Corporation.
Unlike many other types of entities, there are very strict limitations and restrictions on the number of shareholders allowed, as well as on who can be a shareholder of an S Corporation. If you violate these rules, you could lose your S Corp status, which could have disastrous consequences.
- Limited Liability Company
LLCs are hybrid entities that offer the legal protection of a corporation but the option to be taxed as a pass through entity (i.e. partnership or disregarded entity), meaning there is no double taxation. The owners of an LLC are called “members.”
If an LLC has more than one member, it is generally taxed as a partnership. If it only has one member, it is generally disregarded for federal income tax purposes (but not legal purposes) and taxed as a sole proprietorship. Income is generally taxed directly to the member or members regardless of distributions.
A partnership is another type of pass through entity that has 2 or more owners. There is no federal partnership level tax and all income flows through to the respective partners to be taxed at the partner level, regardless of what distributions have been made. A partnership generally files Form 1065 for federal income tax purposes.
A general partner is generally liable for all partnership debt, whereas a limited partner’s liability is generally limited to his or her investment in the partnership. There are a number of different types of partnerships.
Sole Proprietorships vs Single Member LLCs
If you run your blog as a business, you should consider an appropriate type of entity for your blog. For blogs with only one owner, sole proprietorships and single member LLCs tend to be very common choices.
In general, a sole proprietorship is the most simple and least expensive type of entity. It is very easy to create and terminate, but the owner generally has unlimited liability for all business actions and debts.
A sole proprietorship may be most appropriate where there is little risk associated with the business (or any risk may be hedged against with insurance), the business is just getting started, and profits are low or nonexistent. It may not be the best choice if the nature of the business is hazardous.
Many businesses start as sole proprietorships, but then convert to an LLC or other type of entity later on once they have grown or their needs have changed.
A single member LLC may be a little more burdensome to set up and maintain, but it generally provides much more legal protection than a sole proprietorship.
Neither has the disadvantage of double taxation or requires the filing of a separate federal income tax return.
Disclaimer: The above article is provided for informational purposes only and should not be interpreted as professional financial, legal, or tax advice. The issues involved in choosing an appropriate business entity are complex and this article by no means captures all of them. Additionally, certain laws vary from state to state, so it’s important to obtain appropriate legal and tax advice for your specific situation.
This post was written by LD, a CPA and CFP® who blogs at Personal Finance Insider. You can find out more about LD and sign up for his free personal finance e-lessons (covering all of the major topics in a good personal financial plan) here.
What Does Your Blogging Network Look Like?
I do nothing on my own.
Everything is a team effort.
As I teach in my blogger networking eBook, the way to increased, ever-expanding blogging success is to look for, grow and tap into a huge, loyal network of blogging friends through the power of generosity. Be generous. Help people. Shout out fellow bloggers. Release expectations. Get super connected. Most of us understand this is how to succeed online; be generous and get connected because 100 is better than 1. 100 friend efforts are far better than your effort alone.
One basic problem arises for most new or struggling bloggers: overcoming the deep fear of networking. For odd reasons, humans cling to pulsating fears concerning reaching out to other human beings. Bloggers fear being rejected, failing, being criticized or giving up credit for their blogging success. Honor that fear. See how far you get on your own steam. Not only that, the agony of micro-managing makes you sick, broke and quite dumb, if you are honest with yourself. How silly of you! Why do everything on your own today? Why not comment genuinely on a few blogs, retweet a few blogger blog posts and mention a few bloggers on your blog? Begin networking. Build a network. Succeed online.
What’s It Look Like?
Be honest, my blogging sweet robbins. What does your network look like? Is it even there? Do you even have a network? Many bloggers publish a post, share it to Twitter and Facebook and sit there, dumbfounded. Do you honestly believe your network just materializes out of thin air? Nope. But if you buy my eBook, follow my 13 steps and build your blogger buddy network by being generous, you can land on famous blogs, earn coin and drive traffic to your blog, too. Everything hinges on your honesty. Admit having only 1, 3 or zero blogging buddies. Truths set you free to network generously and successfully.
How to Grow Your Network
Simple. Be generous. Begin now. Publish a thoughtful, personalized comment below. Be seen. I cannot read all comments but the thousands of people who read blogging tips tend to read comments. Somebody eventually reads your blog comment if you comment genuinely and generously every day on Blogging Tips after reading posts. Someone clicks your link because they love your comment and want to meet you. One visit to your blog later, you may have a blogging buddy, or even a client or customer. Or maybe you have a loyal reader. This is networking 101; be generous, engage people and you build your network.
But do not stop after commenting on Blogging Tips. Branch out. Go wide. Read and comment genuinely on other blogs in your niche. Make more friends. Life gets easier and easier if you have more blogging friends in your corner because these folks inspire you to keep going, plus your friends amplify your presence exponentially.
Be generous and genuine. Reach out to more bloggers every day. Networking is a bit uncomfortable sometimes if you look for immediate returns but gliding through these temporary feelings helps you tap into something special with your blog. Connected bloggers have no issues growing their blogging business because 100 is better than 1. Remember that they next time you try to go lone wolf with your blogging campaign.
Are You Leveling Up with Your Blog?
Every time I reach a new level with my blog, I notice another level invites me. I do not work harder. I never work longer. I love what I do and keep generously helping people but think of how to go wide as I level up. Think of that one for a moment: consider how to go wide, and what it means.
I write and publish multiple posts to my blog. Each post gains views. Going wide. 4 quality posts beats 1 quality post. But I go even wider by writing and publishing multiple guest posts daily. I speak to 2 or 3 or more different blogging audiences, going wider and wider, increasing my exposure and expanding my presence online. But I go even wider as I level up; I contribute on Quora and on the Warrior Forum daily. Leveling up is uncomfortable sometimes but always freeing. Leveling up helps you see greater success versus hitting blogging ceilings.
Be More Generous to Make More Money and to Avoid Lulls
I speak to bloggers who suffer lulls. One client signed up 4 months ago but no clients signed up since. The appearance of a 4 month client drought, or lull, simply indicates a lack of leveling up and a lack of generosity. Even if no clients signed up during your 4 months of leveling up, your eBook sales would triple. Audio book sales would jump, too. Plus you would open 2 new income streams. This just happens. Be generous and blogging will be generous to you.
Being more generous by helping more folks across multiple platforms feels uncomfortable sometimes. Who wants to go wide when doing so means leaving your comfort zone on a daily basis? I love blogging. But I feel uncomfortable writing my third post on a train ride to Connecticut. I will go super wide when I reach the destination though, publishing a combo of posts and guest posts to level up effectively, reaching more people in less time.
Most Bloggers Never Level Up
Most bloggers write and publish a post to their blog weekly. Struggles ensue because they never level up after publishing weekly for 3-6 months. Be more. Serve people generously. Go wide. Publish blog posts and guest posts more frequently to expand your reach. Increase blogging traffic and profits.
Why do you think most bloggers never make $100 during their careers? Few bloggers regularly level up, playing small to be comfortable, dodging their fears. Of course, their fears manifest as 0 dollars and 6 blog visitors daily for the next 12 months UNTIL they level up, go wide, be generous, leave their comfort zones and face their fears. This is not a fluffy, pleasant process but we all pay a fear tax to level up and to become successful bloggers.
Pay Up to Level Up and to Play Up
Pay up by spending time and generous energy reaching as many people as possible through blogging. Guest post. Publish more frequently to your blog. See increased blogging responsibility as more fun and freedom and service. I enjoy freedom offline because I level up online. I pay up, level up and play up in higher blogging circles because all top bloggers paid the same dues to reach the top. Why do top bloggers hobnob with one another? Top bloggers respect how other top bloggers pay their dues on this blogging journey and connect deeply with one another, co-promoting each other’s success.
The fun and freedom you experience through blogging is well worth the effort and discomfort of leveling up.
If you need a guide for facing blogging fears, grab my blogging mindset eBook on the way out.
1 Warning About Blog Site Speed and Successful Blogging
I know blogs should be fast loading for becoming a successful blogger.
But successful blogging depends not on site speed alone.
Before you go bananas trying to make your site as fast as possible because you believe you cannot succeed sans a razor sharp, lightning fast loading blog, get this: a handful of bloggers I came across yesterday made $10 grand, $20 grand or $30,000 monthly – or more – running relatively slow-loading sites heavy with ads and images. Far from being lightning fast loaders, the blogs took a while to render on my Chromebook. Why does someone make $30,000 monthly with a kinda slow loading blog? How clear you are on your blog determines how much you succeed with your blog.
I feared publishing high volumes of content for worrying the posts would slow down my lightning fast blog. I held back. But hugging the fear of slowing down my blog, I decided to publish more content and experienced greater blogging success. Traffic and profits rose. Even though my blog slowed down a little bit, people did not care. Like the $30,000 a month bloggers, I got clearer on my blog loading more slowly and saw greater success because I hugged the fear of having a slow loader, and proceeded in that direction.
My blog does not load lightning fast and I experience increasing success. But when my blog loaded blindingly fast, I did not see as much success because I stopped posting generously due to my fear of posting too much and slowing down my blog. Do you see how insidious fear is? Do you see why I wrote an entire blogging mindset eBook? Blogging struggle is fear. Blogging success is feeling fear and letting fear go, to blog from abundance, love and trust, being generous with your time and talents.
Slow Blog Big Bucks
I have seen legit slow loading blogs run by bloggers who make hundreds of thousands of dollars every year. The blogger proves: if you let go fear in any area of your blog, success is yours. I betcha these bloggers did not have the fear of a slow loader in their ear; these bloggers have posture, knowing loving readers read their content if said content loads in under 1 second or in 10 seconds. Seriously; some blogs load 10 seconds or longer for me and the bloggers owning these blogs make serious bank and have serious clout online
By all means, speed up your blog. But do not make the common mistake of trying desperately to preserve lightning fast load times at the expense of increased blogging profits, increased blog traffic and stunning success over the long haul. You can always upgrade hosting too; the option is available at any time. But do not foolishly believe blogging success is a simple speed test. I vividly recall feeling proud how fast my blog loaded, publishing 1 post every few days, and seeing my lukewarm to not so hot at all blogging success. I had fun generously increasing my posting frequency, then, voila! My blog slowed down some but my traffic skyrocketed and profits grew fast too.
Never allow someone’s fear – including your own – dictate your blogging campaign direction. Bloggers who make serious coin run some slow-loading blogs. People stick around and read your blog if you fear not it loads slowly. Simple energy thing. But the clarity needs to come from within if you want to make a lasting change and get super clear of this destructive, failing energy.
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