Clay Stafford, founder Killer Nashville and CEO of American Blackguard Inc., is regularly asked a range questions from writing to publishing to marketing. And, they’re always good questions, he says. But often he feels he is unable to fully answer due to time constraints. Writing as a business is important stuff and demands reflection. In our Ask Clay column, he will share more than 30 years of experience in what he knows about the writing business.
Incorporating Yourself as an Author
I’m an author and I’m thinking about incorporating. Do you think this is a good idea?
– Chris J., Crofton, MD
Chris, that’s a great question, but I’m not sure I can give you a complete answer here. I do not give legal or accounting advice, nor do I want you to accept my word on this subject, but I’ll try to point you in the best direction. I’m afraid it depends upon the writer. It depends upon the state in which you live. And it depends upon exactly what you plan to do with the incorporation.
In my own personal journey, I started out writing just as “Clay Stafford.” It was my name and I was happy to see my by-line. Itemized expenses went to my Schedule A, income was reported as personal, liability was my own or the companies that I wrote for, depending.
When I was sixteen, I formed my first “real” company to produce local television and radio programs for a #106 radio and #86 television market demographic town. Even then I didn’t incorporate, but I did change the name of my operations to a DBA (doing business as): The Clay Stafford Company. My writing copyrights still went to Clay Stafford as did my by-lines, as did 100% of the liability, but since I had formally filed a license for a DBA, I was able to move my expenses over to a Schedule C, which allowed me to deduct more than I could have deducted under Schedule A. Plus, it told the world I was a serious writer: I had a license. Benefit: Bottom line. Forming a DBA is something I personally would consider for all full-time to part-time writers who are consistently selling work and showing a profit. You can do this yourself by simply contacting your respective Secretary of State.
In 2002, The Clay Stafford Company changed its name to American Blackguard, Inc. We were expanding into a full media company, increasing revenue, we had numerous projects in the works, and because we were hiring employees and working with numerous media projects, liability was increased and a need to streamline resources yet create separate accounting systems was required. At that point, both attorneys and accountants advised the change to a corporation rather than a DBA. The Corporation is an entity unto itself. It files its own income taxes and makes it’s own business payments. If the stockholders and Board of Directors agree, it will continue long after my death and projects and revenue will still be recognized for my heirs in the future. I agreed to work for American Blackguard as an employee. Benefit to me personally: no business expenses, I get paid as an employee, and American Blackguard, Inc. pays or deducts all taxes, keeps up with various projects, owns sub-companies, and assumes the liability for problems not knowingly or maliciously committed on my part as an employee.
Does this process work well for everyone? The answer is a resounding “no.” Only a tax and legal professional can give advice on your particular circumstance. I can tell you that I know several writers who copyright under a corporation and many more who copyright under their name.
Here’s something to consider, though. In normal circumstances, people who form corporations do so to protect themselves from liability and to create tax advantage. In my case, we did it to create clean bookkeeping (nothing professional gets commingled with anything personal).
What you do not want to do – as someone who will probably own 100% of your corporation – is to allow anyone to be able to “pierce the corporate veil” of your organization. Writers have to worry about commingling finances. They also have to worry about libel and slander. If anyone can sue you and determine that anything you did and / or wrote was coming from you personally rather than from the corporation, the veil has been pierced. If you use a company credit card to buy groceries one day because you forgot your personal card, there is the implication that the corporation is only an extension of you and can be pierced. There has to be a firm, huge black line between business and personal. And something to point out: no matter what your organizational structure (individual, self-employed, DBA, or corporation), slander is slander and libel is libel. Nothing protects a writer from falsehoods or misrepresentation, either real or interpreted.
The other thing to concern yourself with is expenses and taxation. A business requires additional accounting and tax expense. When a corporation is formed, it must pay certain business taxes, not only for its existence, but also matching taxes for employees, of which the writer is now one. So you have to determine is it cost effective to have such a structure? Do the expenses one is allowed to deduct compensate for the loss of income paid to additional taxes? A way to consider reducing those additional tax burdens is to form an S Corp, which allows pass-through of funds, thus reducing some tax burden, but this is to be countered with the more advantageous tax structure, deduction structure, and parent ownership structure of sub-companies contained within a C Corp. As stressed before, these concerns should be discussed with your accountant or attorney before jumping into either arrangement. And please, do not start a company using some form from the Internet. A discussion of your particular circumstances with knowledgeable accountants or attorneys is well worth the investment.
In examining why you are looking at your writing business structure, whatever you decide to do, don’t try to cheat the government. I’ve been subjected over the years to rogue attorneys who try to sell do-it-yourself legal packages designed to protect my assets and allow me to forgo any taxes to the government. Too good to be true? They are. A few years ago, the most audited group of individuals by the IRS were the clergy, followed in a close second by entertainers and writers. Whether this is still true is irrelevant to the point. You are in a profession where lunches and supplies could be questionable. Always, always, take the conservative fiscal perspective.
I’ve given a long response, Chris, and I feel I have written much to not answer your question at all, but hopefully this has given you something to think about. Consult with your attorney or accountant who specializes in entertainment / intellectual property (your real estate attorney or income tax prep accountant will have no clue – even if they say they do). Then, and only then, decide your current path, or prepare your options for the future when certain financial or career personal benchmarks are achieved.
Having worked in film, television, radio, and publishing as both a buyer and a seller, Clay Stafford is happy to take your questions regarding the publishing / entertainment industry.
Clay Stafford has had an eclectic career. Not only did he found Killer Nashville in 2006, but he has also been an industry executive (PBS, Universal Studios, others), author (over 1.5 million copies of his books in print), a filmmaker (work in 14 languages), university professor (several universities including University of Miami and University of Tennessee), and a much-sought-after public speaker (U.S. Department of Defense, Miami International Press Club, more).
Send your questions here.