If you are a self-published author, it may be a good idea to start a publishing company. Read on for reasons why becoming official may be a good idea and for tips on how to start a publishing company.
*Note: these tips are for starting a company in the United States. We are not financial or tax advisors and intend this post only as an overview to get you started. Please consult a tax professional. *
Do I Need to Start a Publishing Company?
If some of the following apply to you, you may want to consider starting a publishing company.
- You write books as your main job rather than as a hobby.
- You have several published books or plan to publish several books.
- You make more than $2,000 a month in sales.
- You write books with a higher risk of liability, such as technical or health books.
- You want to look more professional than the occasional self-publishing author.
- You want to co-author books with other authors or publish other authors’ books.
Benefits of Having Your Own Publishing Company
- You get more tax breaks as a business than you do as an individual and can deduct expenses from your non-writing income.
- If you get sued, your personal income and assets are protected if you start an LLC.
- Your books will look more professional because they’ve been published by a publishing company rather than an individual. This also makes it easier to get your books into libraries and bookstores.
- You can make a little more money by publishing other authors’ books.
Steps for Starting a Publishing Company
1. Decide What Kind of Business to Make
There are several business structures, the most common for authors being a sole proprietorship:
- Sole Proprietorship: a business owned by one person and the easiest to create. However, it enjoys no liability protection or tax advantages.
- Partnership: two or more people own the business. There are tax benefits, in that any profits and losses "flow through" to the personal tax return of the owner(s).
- C Corporation: can have one or more owners, and provides liability protection. It does, however, pay taxes on its profits. If it distributes any of those profits to its owner(s), those profits are subject to tax again.
- S Corporation: a small corporation. Similar to a C Corporation but, like a partnership, profits and losses "flow through" to the personal tax return of the owner(s).
- LLC (Limited Liability Company): protects and separates your personal assets from your business assets. Note that the rules for creating an LLC vary from state to state, with some making it easier than others. As an LLC, you can elect to file your tax returns as a corporation or as a partnership.
See the IRS’s website for more information about these structures and the rules that govern each.
2. Choose a Business Name
You want to choose a name that relates to what you’re doing, so it may include the word “publications” or “press” or even “entertainment.” If you want to focus on a genre, then choose a name related to that. If you intend to publish multiple genres, be sure to choose something more broad. Whatever you choose, make sure it fits your writing brand.
When choosing a name, make sure that
- It is not trademarked,
- It doesn’t include the word “corporation” or “inc” unless you’re setting is up as a corporation,
- And the name is not already taken in your state. To find this out, search in a web browser “see if a company name is taken in [your state].”
3. Choose a State of Business
Most authors set up their state of business as the state they live in, but there can be some tax benefits or lower registration costs if you choose a different state. However, that adds complexity. If you do choose to register your business in a different state, be sure to research the rules and ramifications first (they vary for every state).
4. Set Up a Place of Business
When setting up an LLC, you’ll have to put in the business address. This becomes public information, so it's better not to use your home address. However, while some states allow you to use a P.O. Box number on the application, others won't.
Here are some other options:
- A UPS Mailbox: With this, you can receive a mailbox number that looks like a real address, so you can still use it with states that don’t accept P.O. Box numbers. You have to go in person to set this up, but once it’s set up, you can have them forward your mail to your actual address.
- A Registered Agent: This provides added protection in that your name won’t be on the address (and thus not on the public record). There is a fee for this, but they’ll usually also set up your LLC for you.
- A Virtual Office: You can set up a virtual office without going in person. You get a mailing address, and you often get a phone number.
5. Register Your Company
Now it’s time to actually register your company. There are many businesses out there that will do it for you (like if you get a registered agent), or you can do it yourself. Every state has a different process, so if you want to do it yourself, which isn’t difficult, just search “register an LLC in [your state]” in a web browser.
6. Get an Employer Identification Number (EIN)
An EIN includes information about your business and where it was registered, and you’ll use it on tax forms and to open a bank account for your business. If your business is a sole proprietorship, an EIN is usually unnecessary. However, if you pay employees, or your business is a corporation or partnership, you’re required to have an EIN. If you have an LLC, we recommend getting an EIN so you can open a bank account for your business.
Applying for an EIN is free.
7. Open a Business Bank Account
We recommend opening a separate bank account for your business regardless of which kind of company you are starting. This way, your personal funds are kept separate from your company funds, and you can pay contractors (editors, designers, promotion companies) through this bank account.
To open a bank account, you’ll need your business’s EIN, your LLC approval (you’ll get this when you register your LLC with your state), and two forms of ID. The bank will also ask you to fill out a Beneficial Ownership Declaration Form (to disclose who owns the LLC). Some banks may require additional documentation, such as an Operating Agreement or a Welcome Letter. Be sure to check with your chosen bank for what documents you’ll need.
8. Purchase ISBNs
To take advantage of your new publishing company, you’ll want to purchase some ISBNs with your company listed as the publisher. We recommend buying the 10 ISBNs for $295, because it’s much cheaper than buying single ISBNs ($125 each). It's even better to buy 100 at a time, once you can afford that. You can buy the ISBNs now and fill out the book information later, as you publish books. This entire upfront cost can be used as a deduction on your taxes.
ISBNs are bought from Bowker.
10. Check Tax Laws
If you intend to sell physical books at events, then be sure to look up your state’s laws on sales tax (45 states require you to charge sales tax). You may also need to register for a sellers permit and will need to fill out a form to give your state the tax. Most states allow you to register for a permit for free, but some charge a small fee.
This only applies if you’re the one who owns and is selling the physical books. If you’re working with a bookstore that is selling the books for you, you don't need to worry about the sales tax or a permit.
11. Pay Yourself
All expenses from your LLC bank account should be business-related. For personal expenses, you’ll need to pay yourself and then use your own bank account. As the owner of an LLC, you can pay yourself in two ways (you can do either or both).
As an Employee
This employee wage is considered an operating expense and is a deduction on your publishing company’s taxes. If you go this route, you’ll also need to file a W-4 to determine how much is withheld in taxes (done once, when you first become an "employee," until your tax situation changes).
Generally, you'll need to deduct federal income tax, state income tax, social security, medicare, and unemployment insurance.
Usually, you'll remit federal income tax, social security, and medicare, once a month. There are also monthly, quarterly, and yearly reports to file. For example, your business will need to file a W-2 by the filing deadline (done yearly, by January 31st). Be sure to become aquanited with the federal and state report you need to file, including state's Unemployment Insurance.
Also check with your state's tax commission to see if you need to carry Workers Comp.
You can also pay yourself from your company’s profits with year-end distributions. If you are the only owner, then you receive 100% of the profits each year. If you want to receive payments more regularly than once a year, you can set up ongoing payments against the estimated year-end profit. Unlike with paying an employee, income taxes are not deducted at time of payment, so you’ll have to pay them when you file your personal taxes, as well as self-employment taxes. You also can’t claim this as a deduction for your business.
12. Do Taxes
A sole proprietorship, a partnership, and an S-Corp do not pay taxes as their own entity. Instead, you report the company's profits and losses on your personal tax return. This means that if your partnership or S-Corp has profits that you didn’t pay yourself (because you’re saving it in your business account for future expenses), you still have to pay taxes on it.
It may be advantageous to have your business taxed as an S-Corp; this way, you wouldn't have to pay social security and medicaid tax on profit distributions. But to be taxed as an S-corp, you are required to also pay yourself a reasonable employee salary, which is subject to the regular taxation. Filing as an S-corp does mean you will have to file additional forms as well.
You’ll receive a form 1099 from retailers where you sold your book (such as Amazon KDP, Google, Barnes & Noble, Kobo, and Smashwords). These forms are also sent to the IRS, so be sure that this income is included on your tax forms.
If your publishing business makes enough money, you may need to pay quarterly estimated taxes (if you expect to owe at least $1,000 in federal tax). For estimated taxes, you need to pay at least 90% of the tax that’ll be due that year, or 100% of the tax that you paid the previous year.
Starting a publishing company can save you money in taxes, can make your books look more professional, and can protect you from lawsuits. If this is something you want to do, we advise you to do additional research and speak with a tax professional to set it up in a way that is best for you. You may also want to get help that first year of taxes, so you can get the best deductions and be guided through filling out all the necessary forms. But once you learn how, you can do it yourself (just like publishing books!).
For more information, the US Small Business Administration is a great resource.
You can also check out our blog post on treating your writing like a business for some more tips on deductions.
Do you have questions on how to start a publishing company? Do you have experience creating a publishing company? Let us know in the comments below!
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