Hello, fellow pen monkies and word nerds. I have a bunch of legal questions and concerns that I came across earlier today. I sent a support email to one of the ebook retailers that I was intending to sell with, but in the mean time, I decided to post my questions here as well. Ever since I've been compiling portfolios and building up 'published' works online, most for free, I have decided that I'll be using 3 to 4 different aliases. Be forewarned, as I am going to discuss (albeit, not in detail,) the homosexual and erotic writing niches. One of my pen names is my feminine, Adult Oriented pen name Carol J. Scarlette. This is for works regarding gay pride, romance, drama and generally stuff that's not exactly geared toward a younger audience. The other is a slightly more gender neutral, possibly masculine (but I never usually clarify) pen name called Ash W. Rowan. This is for works that are much more family friendly, but may or may not cater to a boyish audience. Action, adventure, sci-fi, gaming communities, etc. And the last I use is my real legal name, Flora Adams, sometimes stylized with different middle names or using my middle names as my first name. She uses the user name "Fire Fancy" often. - Now, onto the questions. I live in the South East Alaska area, in the United States. Would it be in my best interests to investigate my local DBA ("doing business as") policies, and filing a DBA document for each pen name I think I might need? I really want Carol J Scarlette to be specifically anonymous, as a LOT of my family have no idea I intend to make most of my money targeting the erotic and homosexual niches in writing. Also, do I *really* need to open a banking account for each separate DBA? Because I would prefer to have my funds directed to my main paypal, and that directed to my normal bank account, of which my mom co-owns and co-operates. (As an account holder, I mean.) Also to clarify, I only came across DBAs earlier this evening (Feb 21, 2015), so I did NOT do a lot of research on it, but I will when I know what to look for. If there's more, direly important info on the topic, I would love to know. Another clarification, I have only 'published' in the sense that I posted text on random websites, all for free. I never sold or earned anything as of yet under an alias. What I did earn was trivial and was not even 'real' writing. (I.E., content mills like Textbroker, or Task/Survey sites for pennies per task. Earnings around 40 dollars max, and this was years ago.) Posted stuff would be ramblings on Facebook and the journaling function on DeviantART, Fanfiction on fanfiction sites and "mini job" gigs on market sites like Fiverr.com. (4 dollar earnings total.) Other than fiverr.com, the rest above were all provided for free. - Any thoughts? Any insights and advice I should follow, or answers to these questions? Anything and everything would be much appreciated!
I can answer some of this. I have my own business and as I never bothered to incorporate, I have a DBA bank account. It was a bit of a pain, though I never had an issue years ago (been in business >20 yrs). Whether it was about illegal immigrants or 911 or for whatever reason, the government cracked down on bank accounts including PayPal. You have to have a legal social security number attached to your bank account. For PayPal it's no problem. I sell on EBay and the only thing they required was my SSN if I wanted to withdraw more than $500/month. (I can't recall but I think there was an alternative, a bank account or a credit card or something.) PayPal doesn't care that people pay me under my EBay account. With my SSN they'll transfer as much as I want to my bank account. My EBay name doesn't match my bank account name. But with my business, the bank refused to cash or deposit checks made out to my business. Since I have no employees it was very annoying, especially since I never had an issue before. So I had to bring in my business license and open an account that included my name, DBA my business name. As long as I deposit the checks made out to my business into that account, there's no problem. Getting a Master Business License in WA State was free and only required registering. Check with Alaska, it's probably the same. I also have a couple cities that require their own business license to do business in their cities but that's because I do contract work at companies located in those cities. One charges an annual fee one doesn't. So check with the requirements of your state, your county and your city for business license requirements. Then be prepared to take the appropriate license to your bank to open a DBA account.
I would suggest you contact your local SBA. Should be able to answer your questions or direct you to the proper government department to do so. http://www.sba.com/alaska/
I'm Canadian, so things are a bit different, but I do write under different pseudonyms (one for gay romance!) and I do live in a rural area, which may be significant. (I'm going to guess that there aren't a lot of big cities in SE Alaska, although I don't know that for sure). My personal recommendation would be to deal with publishers, etc. as your legal name. They're totally used to this, and every contract I've ever signed has had spaces for both "legal name" and "writing as". They make sure that your work is published under your chosen pseudonym, so there's no public connection to your legal name. The advantage of this, for someone living in a rural community, is that there isn't a lot of mail being delivered to your house under different names, and there isn't a teller at the bank knowing your pseudonym, either. Both the mail carrier and the bank teller should treat your transactions as confidential, but I've never been confident that they do. I know my mail carrier by name, and if I go to the local branch of my bank chances are good I'll know at least one of the tellers - I don't really want to tell them why I'm cashing cheques in someone else's name.
I would expect that what BayView has experienced is typical. Pen names are not unusual, and any publisher should be able to pay you in your name, while keeping your writing as published under whichever pen name you choose to use. I have not heard of most writers incorporating themselves for writing business they do. (Although that does not mean that writers do not do it -- there could be a lot who do.) I don't see what the benefits would be -- it seems to me it would create a lot more hassle for very little benefit. Usually incorporation is primarily about insulating yourself and your personal assets from liability -- it enables your business to take out loans, insurance, etc. A d/b/a type of business generally allows you to have a bank account that would be a business account, which would be primarily useful for taxes, and also for organization. But it doesn't sound like you have a need for that sort of thing. I'd say the simplest way to go about this is to simply ask anyone who is paying you for writing whether they have an issue with making a check payable to you in your legal name, rather than in your pen name. I could be wrong, but I wouldn't think this would be a large issue.
I don't see a benefit myself, particularly before one is making a significant income from their writing (then there might be tax benefits) but whether one needs to depends on local laws. Personally, I think the less one has to do with government forms, licenses, permits, etc, the better.
There are tax reasons why you might want to form an LLC, in addition to the liability considerations. I'm not sure a DBA provides much benefit. You don't get the tax or liability benefits. I guess you put other businesses on notice with respect to the name you've chosen, but I don't know that the benefit with a writing pseudonym is all that substantial.
Even with an LLC, there might not be the protections one expects. I don't know if this is universal (IANAL) but some localities at least have the power to deny issuing an LLC designation, depending on the actual ownership and/or type of business.
You may not get the liability benefits but for a small business I'm pretty sure DBA vs LLC are the same when one does one's B&O taxes and one's federal self employment taxes. If I make more money I can pay myself less and have the profits taxed as corporate income but the minute I collect those profits they become income. And some benefits would be lost if I become an employee of my corporation and then have unemployment insurance and worker's compensation payments I don't have to make as DBA. For a larger company there are differences.
It seems to me the tax benefits would be very small for a writer, unless you made significant sums of money and could run expenses such as a car, travel, etc., through the business, as related to the writing. And I don't see much liability protection, as most forms of liability would be incurred via copyright or trademark violations or torts for misrepresentation, libel, etc., which would likely be forms of liability that could pierce the corporate veil (particularly since the writer would be the sole recipient of the funds from the business).
I get a significant deduction from my gross profits from my home office. I could see a successful author benefitting from that tax deduction if your house is big enough to create an exclusive office space. For me, I have to have malpractice insurance so incorporating doesn't protect much. I'm sure an attorney like @Steerpike might disagree. But the trade off for me was the problem of becoming an employee of the corporation vs being an owner/sole proprietor. There are significant mandated employee costs in a medical practice that an incorporated author would never have.
At least in Canada, you can claim business use of home expenses, and just about every other business expense, even without incorporating. Is that not the case in the US?
You misread my post. I'm not incorporated. I have a home office and a tax deduction. I was responding to this I've edited the post to make that more clear.
Yes, there are all kinds of business deductions available in the US for self-employed persons without having to be a 'corporation'.
Is your deduction from your nurse-related work or from writing? As far as incorporating as a writer (or using the writing as a business without incorporating), the deductable expenses could only be deducted from income derived from writing. For many writers, I don't think it would be worth it. Writers who find a lot of freelance jobs might be able to have enough of a benefit for them to deduct a portion of their mortgage for a home office, plus car and travel expenses related to writing and general office supplies.
You are right and I wasn't clear, you do have to have income in order to have a home office deduction. The deduction, however, is 100% because I have self-employment income, not because I have a nursing practice. I can deduct a portion of the mortgage interest, (but not the principle I pay, however I can deduct depreciation). I deduct part of my utilities and maintenance. Most people with self-employment income can justify an office. One has to have a place to do the paperwork and carry out other business activities. I do see clients here but it's not necessary in order to claim the deduction. The main thing that is necessary is that the office space be dedicated solely to a business office.The room cannot serve a dual purpose like being a den and an office. That's easy for me, I have a big house and my son no longer lives here.
In Canada, incorporated or not, you can deduct expenses as long as you have a "reasonable expectation" of profiting from your business eventually. So people who are making a serious effort to develop careers as writers can write off their expenses while they're making that effort, even if there isn't any business-related income yet. Not that way in the US? Even so, I don't know that you have to be making a lot of money as a writer in order to pay attention to writing off expenses. I mean, any money you make, it would be useful to not pay taxes on it, right? So even if you only make $5K from writing, it's better to write off $5K in expenses than to lose a couple grand of your income in taxes, right?
If you make 5K from writing, you could deduct expenses related to writing, including a home office expense, but as Ginger noted, it has to be an office exclusively used for writing. (But you don't have to incorporate to do this. Corporations generally have lower tax rates, so there are all kinds of things you can do to play around with it that could make it financially worthwhile, but again, to be bothered, I think the amount derived from writing would have to be pretty high.) As I recall from my tax classes, in the U.S. you do have to actually make money from it -- some commercial, money making endeavor is deductable, but it can only be deducted from money derived from that activity. For example, if you make $100K gambling, but you also lost $50K gambling, you could deduct that 50K from the 100k you won. But if you won nothing, but lost $50K, you can't deduct that $50K from your other income.)
You have to eventually make money, but I think they allow you x years (3?) to show only expenses and no signficant income. After that, the IRS considers it a hobby, not a business.
I can deduct all my business 'expenses' even if it means an income loss. But the home office deduction can only be taken out of net profit. It can bring your income down to zero, but it can't be subtracted past zero to result in an income loss.
Wow! So many posts! o . O I wasn't expecting so much information in one night. Thanks every body for all the great advice and keeping the discussion going! Thanks to @BayView, @shadowwalker, @chicagoliz and @GingerCoffee for the insights and the link. I'll definately take a look into that, and follow your advice. And to clarify, I doubt I'd be earning anymore than 20 dollars a month for the first 6 or 8 months, and I don't think I'd make any significant income from writing this year until November at the most. (Probably 8 or 10 dollars max.) I've been writing forever, but I never really bothered publishing anything for money. Would this be significant enough to even bother seeking out DBA policies?
Play around is right, but the lower corporate tax rate is misleading. For a small business, it does you little good to grow your corporate capital in a lower taxed account. Once you pay yourself or take the profits out, it becomes your income. You could end up paying tax on the income twice. It's when you are rich and take the corporate income as stock that you then turn income into capital gains. The richer you are the more tax games you can benefit from.
Actually, that's for earned income. For self-employment income it's a bit more than $400. The reason is you have to pay FICA tax on 92.35% of your self employment income unless it comes to $400 or less. I don't owe income tax on my income unless it's many thousands more. (Self employed persons subtract health insurance and their standard or itemized deductions before any income tax is owed, but FICA is separate.)
