First, a caveat: I am neither an attorney nor an accountant and none of my advice should be taken lieu of talking with a professional. Never let a blog post make your legal decisions for you. Also, all of this information is based on US law and law as of the date of publication.
That said, this blog post is based on a few facts, my experience, and my advice based on these. Do with this what you will.
So you say you want to start a copywriting business? Super. Let’s skip past all of that learning copywriting, building your portfolio, and finding clients stuff and go right on ahead to your business’ legal entity.
This is where people tend to think, “Oh! I’m a business! In order to be a serious business, I’ve got to be a corporation.”
Here’s the good news, for the vast, vast majority of us, it’s going to make the most sense and keep it simple. As soon as you start earning money by working for yourself, you automatically become a sole proprietor in the eyes of the government.
And, as such, by the way, you need to track that income and prepare to pay taxes on it. Part of what you’ll have to pay is “self-employment tax” which is, essentially, your payment into Medicare and Social Security. (When you work for a company, that’s already taken out of your paycheck before you get it.)
Self-employment tax is currently 15.3% and that’s on top of your other, regular income tax. And that can feel a little painful for some people, so they want to find a loophole.
It’s true that you can form an S-Corporation, pay yourself a salary that is less than the total amount of money you made and only pay self-employment taxes on that salary amount—but it also has to be a reasonable salary.
If you made $100,000 and you’re trying to tell the government you’re taking a $25,000 salary, expect to be audited or, at the very least, penalized.
The fact is that there are so many other costs and headaches associated with forming a corporation, that It’s not going to be worth it for most of us to save a little bit on our self-employment tax. (The smarter thing to do is to maximize your business and personal deductions.)
But what about liability? Don’t some people form corporations to limit their liability? As in, if you have a corporation and you get sued by a client or company, your personal assets are at risk.
Here’s the thing, though: There’s virtually no instance in which you would be liable for any kind of issue. When you write copy for a client, you are providing services to them and they publish or deliver the copy in whatever form (banner ad, email, web page, etc.) it takes—which means any possible liability falls on them.
You would never be liable for the content of your copy because you are writing that copy for your client. Unless you write something you know to be untrue (in which case you would be complicit—but you would never do that, right??), it’s not up to you to take on liability for your client’s project.
You don’t need to limit your liability by becoming a limited liability company (LLC) because you wouldn’t be liable, to begin with.
Now, don’t think that defaulting to a sole proprietorship means everything is free and easy, though—you’re still a professional business. And that means that in addition to paying self-employment tax, you may also need to pay your taxes quarterly, instead of once a year on April 15th. (How do you know? Talk to an accountant! 🙂 )
So, the good news? It’s very, very likely that you don’t need to bother going through the headaches and expenses of creating and maintaining a corporation. But don’t forget to do your due diligence and make sure you’re making the right decisions and saving the right amount for taxes for your sole proprietorship. Treat your business like a business and you’re on the road to success (and profits).
Last Updated on December 9, 2022
I initially wanted to form an LLC for my copywriting business, but this article along with a couple other articles on this site have helped me realize that it’s best to move forward as a sole proprietorship, especially since single-member LLC’s and sole proprietorships are taxed the same way. I’ve just gotten an EIN as well.
That being said, I have two questions:
1. Is it REALLY necessary for me to open up a separate business bank account as a sole proprietor? Many articles online have said that it’ll make tax filing easier, but to me, it seems overly complicated.
2. Will potential clients view me as unprofessional if I ask them to make payments to my personal bank account rather than a business one?
Kate Sitarz says
So glad to hear this article was helpful (of course, always consult the legal pros if you have additional questions). To answer your questions:
1. We *just* posted an article about business bank accounts today that I think you’ll find useful: http://filthyrichwriter.com/opening-a-business-bank-account-as-a-copywriter/ But the short answer: you need to keep your personal and professional finances separate, but that doesn’t mean you have to have a *business* bank account. You can simply open a personal account that you use solely for business transactions. This podcast episode may also help: http://filthyrichwriter.com/podcast/tax-and-bookkeeping-tips-for-freelance-copywriters/
2. No, your clients won’t view you as unprofessional. First, they will have 0 idea what type of bank account you’re using. Second, clients are used to making payments to an individual’s name. Many of them frequently work with contributors like copywriters and graphic designers who are often sole proprietors.
It’s really easy to feel like we *need* to do a lot to feel more professional, but the truth is doing the work and getting paid is what makes us feel professional 🙂
Thanks for commenting!