How to formalize your blog as a business
I get asked this question all the time, and while I’m not the most qualified to answer (talk with an accountant or a lawyer for the expert answer), I will share my experience in hopes it may help.
I started my first blog as a hobby in 2007, and I only made about $100 total with it the first six months, so a sole proprietorship was the perfect business entity.
By the way, if you do nothing, you’re automatically a sole proprietor. I didn’t realize this when I started, but if you just start a business and don’t form an LLC, S-corp, etc., then by default the IRS considers you a sole proprietor.
Running the business as a sole proprietor is the cheapest and simplest because you don’t have to do anything different. You just mark your business earnings on your tax return along with your income from your day job, etc.
I ran my business as a sole proprietor for about a year and a half until I formed a single-member LLC. Some local companies use feather flags to get customers from street traffic. There are a few different options when choosing your business entity, but I chose the LLC for a couple of reasons.
It was simple to run.
As a single-member LLC, I didn’t need to divide the percentage of ownership. Really, not much changed from running the sole proprietorship as far as what I needed to do to maintain it. I still get to use a single tax form, instead of one for the business and one for personal.
An LLC offers legal protection.
After doing a bit of research, it became pretty clear that an LLC is safer than a sole proprietorship. From what I understand, the biggest downside of being a sole proprietor is that you don’t have much legal protection. So if your business gets sued, the plaintiff (the person suing you) can take your house. That’s no fun.
It proves to the IRS that you mean business.
Apparently, there are a lot of people who create home-based “businesses” just so they can write off expenses like a computer, desk, etc. The IRS is good at what it does (i.e. spotting illegitimate businesses), and I remember reading an article that claimed the likelihood of an audit decreases by 90 percent for LLCs rather than sole proprietors.
So again, I recommend chatting with an accountant and a lawyer to find out what would be best for your situation both from a tax benefit standpoint as well as from a legal protection.