As you start to develop a monetization strategy for your newsletter, a question arises: What should you do with the money?
Once your newsletter generates revenue, you have a few options. You can file taxes on that income as a sole proprietor, or you can decide to file an LLC and create a business. This week, I asked Ryan Pitylak, the CMO of ZenBusiness, to answer questions about the paperwork behind the scenes of starting a newsletter business.
When is the best time to open an LLC?
“I think it’s never too early to open an LLC. The benefit of doing it upfront, before you’ve begun earning income, is that when you start tracking your revenue and expenses, everything will be clean. The cost of opening an LLC is quite low. There are some responsibilities for managing it, but it’s very straightforward to set up.”
Why would opening an LLC help track expenses? Can you explain that?
“When you file an LLC, you can open a business bank account. That means you’ll have a separate account with all of the money you’ve earned from your newsletter business as well as all the expenses you’ve paid for any services you use. When it’s time to track all of your income versus expenses and see how the business is doing, using some tax or accounting software, it will all be clean and easy to see.”
You hear a lot about the tax benefits of opening a business and writing off expenses. Is that specific to just LLCs?
“Sole proprietors are also able to write off a lot of business expenses. When it comes to these expenses, you want to be able to track them so at tax time when you’re looking to get deductions, it's easy to collect them all together to make sure you’re maximizing the amount of money you can take home by minimizing the taxes that you owe. The substantial difference between sole proprietorships and limited liability corporations is the legal protection you receive when you have a company.”
What is the most common business filing you see? LLC, S Corp, C Corp, sole proprietorship?
“We have over 150,000 customers. Through that customer base, we get a sense for what people need. Usually, it's just an LLC. That’s the simplest. The benefit of an LLC versus a sole proprietorship is that you have this extra layer of protection between you and the world. That could be the people that pay you money for the newsletter, or the businesses that pay you for sponsorships. It protects your personal finances in case there is ever a lawsuit which is pretty important. No one ever wants to think about that, but it does happen. So it’s good to protect yourself.
Sole proprietorship, at its most basic level, is a person just operating as themselves. They could file a DBA. That would be like Ryan Pitylak ‘doing business as’ XYZ newsletter. Again, I don’t recommend doing that because you don’t have that extra layer of legal protection. There’s also a level of legitimacy that you earn in the eyes of businesses paying you money when you’re operating as a business, sending invoices as a business, etc. I do think that gives you an opportunity to help you earn more over time.”
What’s the difference between an LLC and a trademarked brand name?
“Doing a trademark search is fairly easy. The Secretary of State will not allow you to open a business in the state that conflicts or is too close with another business in the same state. If the name is available for an LLC, you’ll likely be able to use it. You should do the extra layer to make sure the name doesn’t have a trademark associated with it. Then you can trademark it yourself after you’ve filed the LLC.”
What about hiring freelancers or contractors? How does that work?
“Once you get to the point where you're starting to hire freelancers and there's other people starting to become involved, that's a really good time to get a company in between your own personal finances and the rest of the world.” Read more here about filing 1099 forms for contractors.