Advice Needed on Forming an LLC as a Content Creator
Hi everyone,
I hope to keep this brief. I realize I’m paying more in taxes than necessary and I’m looking into forming an LLC. My plan is to “pay myself” as an employee to better align my tax burden with my actual earnings, which are quite low at this point.
I’m located in California and have a couple of questions: Should I form my LLC in California, or would it be more beneficial to incorporate in a state like Delaware? Does the decision depend on my revenue level or other factors? Are there any potential drawbacks to incorporating out of state that I should be aware of?
I’ve done some self-research, but I’m eager to hear your insights and experiences.
Thank you!
One response
Hi there! Great questions—let’s break this down.
California vs. Delaware: If you live and operate your content creation business primarily in California, it often makes sense to form your LLC there. California has specific regulations that apply to businesses operating within the state, and you would need to register as a foreign LLC if you formed your LLC in Delaware and then tried to do business in California. This means additional fees and paperwork. While Delaware is well-known for its business-friendly laws, particularly for larger companies, for a small content creation LLC, the advantages may not outweigh the convenience of incorporating in your home state.
Revenue Considerations: Your level of revenue does play a role in your decision. If your revenue is minimal, forming an LLC in California can simplify things. However, keep in mind that California has an annual franchise tax fee for LLCs, which is a flat rate that can be burdensome for lower-revenue entities. If you anticipate growth and higher revenue in the future, forming an LLC might be beneficial for the liability protection and potential tax benefits it provides.
Pitfalls of Out-of-State Incorporation: Some common pitfalls include additional costs, such as registration fees and the need to maintain a registered agent in the incorporation state. You’d also have to file taxes in both states, which can complicate your tax situation. It can lead to a situation where you have to comply with regulations in more than one state, which may be overwhelming for a small content creator.
Paying Yourself: As an LLC, you can choose how you want to pay yourself (i.e., as an employee or through distributions). Keep in mind that the way you compensate yourself can have different tax implications, and it’s often wise to work with a tax professional to determine the best approach based on your specific situation.
Overall, it’s advisable to consult with a tax professional or a lawyer who specializes in small businesses to ensure that you’re making the right choice for your circumstances. They can help you navigate the nuances of California tax laws and advise you on the best way to structure your LLC. Good luck!