Should I Start an LLC for My Transcription Business?

By starting an LLC for your transcription 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.

Transcription businesses will benefit from liability protection because of the risk of being sued for libel, trademark infringement, personal injuries, and more. 

Example 1: When one of your employees transcribes a piece of copyrighted content without receiving permission, you find out that your business is being sued. Since you didn’t personally infringe on the claimant’s intellectual property rights, your personal assets will remain protected regardless of how the claim progresses in court. This means that you will not have to use your personal assets to compensate the claimant if your business is unable to. 

Example 2: A customer asks you to transcribe their audiobook so that they can sell it. After transcribing it, you find out that the rights of the book are no longer owned by the customer, as they had already sold them in the past. If a lawsuit was to arise against your LLC, your limited liability protection would shield your personal assets from the claimant(s). 

Example 3: You acquire a small business loan in order to cover some of your short-term costs and rent out a new business office. When you get your business’s lease, you make sure that the property contract is drafted between the landlord agency and your LLC. As a result, the landlord will not be able to sue you personally in order to get paid if your LLC is unable to pay them in the future. 

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 a Transcription 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 a transcription 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

Transcription 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.