Affiliate Marketing: Incorporation Questions, Answered
So, you have an affiliate marketing business. That's good.
YShould you incorporate? If so, when? And why? And how
Please note: this is not the forum for comprehensive legal or tax advice.
Nevertheless, see below for three solid answers to three common questions that will hopefully help you decide if, why, and how you should incorporate your affiliate marketing business.
Q: Should I incorporate my affiliate marketing business right from the start?
A: Not necessarily, especially if you're an affiliate marketing beginner. Incorporation can provide your business with three primary benefits: a professional image, income tax advantages, and legal protection in case you get sued.
However, these benefits come with costs attached. Depending upon the state in which you incorporate, monetary costs may run you up to a couple grand per year. There is also a paperwork burden associated with maintaining a corporation--paperwork costs time.
The costs may not be worth the benefits when you're starting out. Run lean and mean during early on if at all possible. Cheaply achieve, for example, a professional image by filing a "Doing Business As" notice; a DBA allows you to open a bank account under your business name.
The two main (but not only) exceptions to the "wait a minute" incorporation rule are:
1) Incorporate from day one if your affiliate marketing activities are related to controversial industries such as gambling or porn.
2) Incorporate from day one if you already have significant assets other than a personal home (rental property, stocks, other companies).
Q: When should I incorporate my affiliate marketing business?
A: This is, of course, a judgment call, but the simple answer would be: when you can benefit from the image, income tax, and legal protection benefits offered by incorporation.
In terms of image, incorporate your affiliate marketing business when you start regularly interacting with other persons or companies; for example, if you are hiring subcontractors.
In terms of income taxes, incorporate your affiliate marketing business when you start gaining a decent income, and are taking significant tax deductions related to that income. Incorporation shows the IRS that this is a business, which means you have deductible business costs.
In terms of legal protection, incorporate your affiliate marketing business when you have something to lose. Incorporation ensures that if you do get sued, you can only lose the assets held by the corporation, and even those are relatively protected (depending on your state).
Q: What kind of corporation is best for my affiliate marketing business?
A: If you guessed that the answer to this question would begin with "it depends," you're right.
But what does it depend upon? You can only choose the right form of incorporation for your affiliate marketing business if you know something about the particulars of each option.
There are three main incorporation options:
A C-Corporation is most appropriate for businesses that have "corporate stuff" like employees, shareholders, and legal departments.
An S-Corporation is a "pass-through entity," meaning that profits or losses "pass through" to the owner(s) of the corporation. This offers potentially appealing tax advantages.
An S-Corporation is a good option for incorporating your affiliate marketing business, especially if you are in business with a partner or two.
An LLC, or Limited Liability Company, is a strong choice for many affiliate marketing business owners because you can get that pass-through tax advantage without some of the more onerous record-keeping requirements of an S-Corporation (for instance, recording corporate "minutes").
If you're looking for a simple way to incorporate your affiliate marketing business that can provide you with a professional image, income tax advantages, and legal protection in case you get sued, look at the LLC option as your first, best hope.
It's easy to start and maintain an LLC, allowing you more time to focus on your business.