Should I Start an LLC for My Affiliate Marketing Business?

By starting an LLC for your affiliate marketing business, you can:

• Protect your savings, car, and house with limited liability protection
• Have more tax benefits and options
• Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Even though they may seem low risk, affiliate marketing businesses will benefit from liability protection because of the inherent risks involved with owning any business, including financial data breaches, trademark infringement, and even workplace accidents.

Example 1: After failing to disclose an affiliate relationship on your ecommerce website, you find yourself facing a lawsuit from a previous client. Even though disclosing affiliates is an FTC requirement, limited liability can protect your personal assets, limiting all damages to your company. 

Example 2: You set up a meeting with a prospective partner in your office. When they arrive, they end up falling while walking up the stairs, injuring their knee. They claim that this is due to the poor lighting in your office and sue you for medical damages. Regardless of the validity of the lawsuit, your limited liability will safeguard your personal assets. 

Example 3: After a steep fall in your website’s traffic and an overall decline in sales, you find yourself struggling to continue paying your employee’s monthly wages. Your LLC takes on a large business loan to finance your expenses in the short term. Since you did not personally guarantee the loan, your personal assets will remain safe regardless of whether your business actually pays the loan back.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC’s limited liability protection, you must maintain your LLC’s corporate veil.

LLC Tax Benefits and Options for an Affiliate Marketing Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business’s net income passes through to the owner’s individual tax return. 

The business’s net income is then subject to income taxes (based on the owner’s tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform. 

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you’d need to be saving about $2,000 a year on taxes.

We estimate that if an affiliate marketing business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Affiliate marketing businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.