What is a Corporate Shield?
*this article is from the Creator Intel Newsletter.
If you want to do business it’s a great idea to get a corporate entity (or shield) like an LLC, C corporation, or professional corporation formed. Not only does establishing a corporate shield make your business more official, it also protects you from personal liability should something in your work go sideways.
Instead of plaintiffs coming after your personal assets like your car, house, jewelry, or Macbook, they can only go after assets of the corporate shield.
👉 Reach out if you want to chat about getting an entity set up!
S-Corp Election
The most tax-advantageous corporation for creators tends to be single member LLCs electing to be S corps under the tax code. This is what I recommend. You avoid “phantom” distributions (if your LLC weren’t elected as an S corp, you could potentially incur tax on distributions even if you’re leaving money in the company). According to the IRS, an S corp “generally does not pay income tax. Instead, income is reported to the shareholders.” This can save you thousands of dollars in taxes every year!
Payroll
If you have employees, you should ensure you’re handling payroll appropriately. This means withholding payroll taxes, filing necessary forms with the state of employment of each employee, withholding social security taxes, and more.
If you have an S corp, this will be a requirement as the IRS expects to see a payroll process for S corps, even if they only have one member and employee. I recommend Gusto for payroll processes, as they handle nearly everything for you (reach out if you want a referral discount).
Additionally, if you intend on working in California or having employees in California (or NY, for that matter), I highly, highly recommend reaching out to an employment attorney to ensure your business complies with the myriad of California (or NY) rules and regulations.
Recently, a client of mine in California got fined over $100,000 because their payroll provider made the honest mistake and left sick hour pay off the paystubs to their employees (the employees filed the sick hours, they just weren’t listed on the stubs). My client is fighting this in the legal system, but it is a headache.
I worked with an excellent employment lawyer to help me with my own businesses, so reach out if you want an intro.
Employee or Contractor?
Generally, it’s better as the employer for folks working with you to be characterized as independent contractors rather than employees. That’s since it reduces legal liability that attaches to employees. But if you are treating your team members as employees, so things like pick pay, payroll taxes, and more are required.
What distinguishes a contractor from an employee? Well, different states have different standards.
But the main factors to think about are:
How many hours per week is the person working for you (more hours = more likely to be employee)
Who is setting their schedule (more schedule setting by employer = more likely to be employee)
On whose property does the person do their work (company property, e.g. company laptop and company phone = more likely to be employee).
There are penalties for mischaracterizing folks as contractors when they are really employees. So make sure to chat with an attorney (like me, wink nudge) to get this right.
Deduct, Baby, Deduct!
Remember to keep close track of your business expenses, and use your business bank account for business-related expenses.
What are “business related expenses”? Well, with the caveat that I’m not your accountant (or an accountant at all), generally, business-related expenses need to have a reasonable basis or argument substantiating why the expense was made in the pursuit of your business operation or activities.
As creators, we wield a lot of flexibility here. Gigs, live shows, deducted entire vacations (flights, meals, car insurance, rental cars, vehicle lease, mobile bill, cameras, computers, and even home improvements). All of this can get written on their tax returns.
Every time you successfully deduct an expense, you’re essentially saving money on your final tax bill. So keep a close eye on what you spend money on, and think to yourself, “is this a business expense?”
OTHER NOTES:
UPS Mailboxes are simple, easy, and effective ways to keep your residential address private while still having a business address for small, tax filings, trademarks, or other reasons. I use one myself. Recommend!
Liability insurance is rare for creators to obtain, mainly because the risk of working without it is low. But as insurance providers become more digitized, especially once $1–2k per year becomes de minimis.
Video editors, graphic designers, and website designers tend to be independent contractors, not employees. (PS, Not always, but usually).
Can We Help?
As a quick reminder, we help with much more than just brand deals. We can draft employment agreements, handle entity formation, file trademarks, draft demand letters, send cease and desists, negotiate startup financings, and facilitate settlements (both in an employment and brand context).
