Do influencers need to set up an LLC? A comprehensive guide
If you’re an influencer or content creator making $20,000+ a year from your content, you might be wondering, Do influencers need to set up an LLC? The answer is yes—forming an LLC can help protect you and your brand from potential liability. While it might seem like an extra step, creating an LLC offers numerous benefits that we’ll discuss in this post.
What is an LLC?
Simply put, an LLC, or limited liability company, is a business structure that provides liability protection for its owners. What that means is, the owner of the business is generally not personally responsible for the company’s liabilities. So if your business is ever in a lawsuit, people cannot come after your personal assets.
Now, if you commit fraud or break the law, then people can come after you personally. But you would never do that so no need to worry about that!
Does the LLC pay taxes?
No. An LLC is a “pass-through” entity for tax purposes. That means that any net income the business makes flows right to you and onto your personal tax return.
You report this on your 1040 tax return as a separate schedule called a Schedule C. On the Schedule C you will report your income and expenses associated with your content creation. The net (income – expenses) is then reported as income on your tax return.
Why do influencers need an LLC?
There are three main reasons why you should form an LLC:
- The LLC helps avoid the risk of the IRS considering what you’re doing as a hobby.
- An LLC provides more legitimacy to your brand as you start to work with other brands and sponsors.
- You get a relatively cheap form of liability protection (see above).
Hobby vs. Business
The biggest risk a creator faces is the IRS claiming that your content creation is just a hobby. If they do, you most likely cannot deduct many expenses. Ouch!
They may say you are operating a hobby if you mix personal and business income/expenses, don’t have an LLC, and aren’t tracking your finances. In other words, you aren’t treating it like a real business.
The LLC is one way to protect yourself from this possibility.
Brand Legitimacy
Most brands or sponsors you work with will require you to fill out a W9 so they can issue you a 1099 at the end of the year. You will look so much more legit if you sign contracts and tax forms with your LLC name rather than just your given name.
This signals to brands that you care about what you do, you’re a real creator, and that you take what you do seriously.
What type of LLC should I set up as an influencer?
The two most common types off LLC structures is a single member LLC and a multi-member LLC. As an influencer, we strongly recommend you go with a single member LLC. This LLC structure is the easiest to set up, administer, and pay taxes on. The only reason you would set up a multi-member LLC is if you had multiple people (besides your spouse) that are your co-creators.
Here is a breakdown of the two main types of LLC structures and why we recommend the single member LLC:
Single member LLC
A single member LLC is a business with only one owner. It is also known as a sole proprietorship. A single-member LLC is a pass through entity. What the means is, your business earnings are treated like your personal earnings. There is no need to file a separate return, it all just flows into your personal return.
If you are married, you should still form a single member LLC and put you as the owner.
Multi-member LLC
A multi-member LLC is a business with multiple owners. It is also known as a partnership. Trust us, forming, administering, and taxing a partnership is much more complicated than a single-member LLC. Avoid this as much as possible.
How do I form an LLC?
LLCs are formed at the state level and are actually fairly easy and cheap to set up. For most states, you can go online, request to set up an LLC, pay as little as $150, and within a few minutes you have a legitimate LLC. Awesome, right?
Here’s how you form an LLC:
- Go to your state’s LLC formation page (just search it)
- Choose a business name that is available. The name should relate to your brand’s name if possible.
- File the articles of organization with the state government and pay the required fee. This can be done completely online and only takes a few minutes.
And that’s it! If you need help forming an LLC, we are happy to do that for you.
One thing to keep in mind is that each year you will need to file a report, and pay a fee with your state to keep your LLC active. But even this can be done online and only takes a few minutes.
Getting a EIN
After you form your LLC, you should to on the IRS website and get an EIN (employer identification number). It takes 3 minutes and is completely free.
The EIN is basically like a social security number for your business. When you fill out tax forms and W9s, you will use this number instead of your social security number. The EIN is one more way to show legitimacy and has the added benefit of protecting your SSN.
Do I need a registered agent?
When you form an LLC, your name and address you use on the LLC will be public knowledge that anyone can look up with relative ease. If you are okay with that, there is no need to use a registered agent.
If you don’t want your address to be public, you can always open up a UPS mailbox and use that address on your LLC. I actually looked up Mr. Beast’s LLC and that is what he does 🙂
If you want your name AND address to be completely shielded, you should pay the $250-$300 per year to have a registered agent. Companies like LegalZoom offer these services and are easy to set up.
Which state should I form my LLC?
You should form the LLC in the state where you live. The are zero tax benefits to forming an LLC in a different state. In fact, you are going to pay more in administrative fees by forming an LLC in a different state.
When should I form an LLC?
As soon as you start making real money ($20,000+ per year), you should form an LLC. There is little benefit to do it before that time. If you form an LLC before you are making money, you are just wasting money.
Conclusion
If you’re an influencer or content creator earning income, you might be wondering, Do influencers need to set up an LLC? The answer is a resounding yes. Forming an LLC is a simple and cost-effective way to safeguard yourself and your brand. So, take this important step to protect your future, and know that we’re here to help you get started!
