Paying taxes on self-publishing income and affiliate marketing income

[Citigurl]

I am a writer and affiliate marketer and I want to form a company to reduce my self-employment tax debt. Most of my income is a self-published author on Amazon and I don't know if I should form an LLC or S-corp. My income is increasing and a friend told me I should form this month and not to wait until the fourth quarter of the year. Any advice on the best way to incorporate myself?

Thanks in advance for any help.

[jamesray50]

Hi Citigurl - Here are some comparisons between the two:

S-Corp - Profit and losses pass through the corporation and are reported to the individual tax return of the shareholder. The profits are not subject to self-employment tax (social security & medicare). Self-employment is only taxes on the "reasonable salary". Losses in the corporation can be deducted from the individual's tax return, thereby minimizing other sources of income, such as W2 income.

LLC - Like an S-Corp the profit and losses pass through the corp. to individual members, however unlike S-Corp self-employment taxes are paid on all profits of the LLC. The losses in an LLC can be deducted from the individual's tax return (same as S-Corp.)

It would be a good idea to see an attorney and/or an accountant before filing any corporation papers. The IRS has lots of rules on this subject. Also, check with your state for their rules.

Disclaimer: I am not a CPA or accountant, but I am a good bookkeeper!

[Evan]

Royalties also may or may not be subject to self-employment taxes to begin with, though it sounds like you're planning on writing multiple publications and get a majority of your money from royalties (aka self-employed writer). If that's the case, it would be subject to self-employment taxes.

[Citigurl]

Thanks so much for detailed response Jo!

[Citigurl]

Royalties also may or may not be subject to self-employment taxes to begin with, though it sounds like you're planning on writing multiple publications and get a majority of your money from royalties (aka self-employed writer). If that's the case, it would be subject to self-employment taxes.

Yes, royalties are the majority of my income so I know I'll have to pay taxes on that. I just don't want to have to pay TOO much.