Last Updated: June 10, 2024, 9:41 am by TRUiC Team


How to Start an S Corp as a Writer

An S corporation (S corp) is an Internal Revenue Service (IRS) tax classification that may help your writing business save money on taxes. Writers use their skill with the written word for a variety of different tasks, from writing freelance for businesses to creating a novel or educational resource there are many ways writers can make a living. 

Whether your writing business has been working for a few years or a few weeks, you could be saving thousands of dollars each year by being taxed as an S corp.

Recommended: Save yourself the hassle and use a professional service like ZenBusiness to help you handle the initial S corp election paperwork.

Smiling woman at laptop writing notes in a pad of paper.

What Is an S Corporation?

An S corporation (S corp), also known as Subchapter S, is a tax status with strict IRS requirements and restrictions. If your business meets the requirements to be taxed as an S corporation, you will be eligible for certain tax benefits such as pass-through taxation and self-employment tax savings, which can be significant. 

Essentially, an S corporation provides the perfect opportunity for business owners to have both the benefits of a default LLC with pass-through taxation and some of the perks of a C corporation without the dreaded double taxation. 

S Corp Requirements

In order to be taxed as an S corporation, your writing business must meet the following requirements:

  • Has 100 shareholders or less
  • Is a domestic LLC or corporation
  • Issues only one class of stock
  • Shareholders are US citizens or permanent resident aliens
  • Is owned by private individuals

What Type of Business Structures Can Start an S Corp?

An S corp designation can be elected by a formal business structure, specifically an LLC or a corporation. Informal business structures such as sole proprietorships and partnerships are not eligible for the S corporation classification. 

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Don’t have a formal business structure? If your writing business isn’t currently an LLC or C corporation, our friends at ZenBusiness can form your legal business entity for you and elect S corp tax status in no time.

S Corp Tax Benefits Writers Should Know About

S corporations enjoy certain tax benefits, such as pass-through taxation (all losses and profit — credits, distributions, deductions — pass directly to the owner). This is similar to how default LLCs are taxed. With pass-through taxation, all profits bypass the company and go directly to the owners, and owners pay on their personal tax return at their regular income tax rate.

Default LLC Taxes Explained

Business owners of default LLCs pay self-employment taxes and income tax on the distributions passed down to them. In other words, both types of taxes are imposed on all the money they receive after paying business expenses. Self-employment taxes include social security and medicare, and these two taxes.

S Corp Taxes Simplified

With an S corporation, owners are classified as employees and are paid in two ways: a salary and distributions.

Reasonable Salary

Since owners are employees, they must receive a salary, and therefore they must run payroll. Business owners pay self-employment taxes and income tax on their salaries. You must pay yourself a “reasonable” salary to qualify your business as an S corp. This means that the salary must be what another person doing the same work would be paid. Online resources like Glassdoor and the US Bureau of Labor Statistics can assist you with research in finding a salary that works best for you and your business.

Finding a salary for a writer can be difficult as they can work in various ways, all of which pay differently. For example, Glassdoor puts the average salary of a web content writer at $46,600, while they put the average salary of a full-time writer at $45,075. This $40,000 to $50,000 range seems to apply to many writing positions, but for individuals like novelists, their pay can radically change depending on book sales, promotion costs, and overall popularity. Be sure to do research on your specific writing position before committing to a salary for yourself.

Distributions

Unlike with a reasonable salary, the owner only pays income tax on the distributions. This means the business owner does not pay the self-employment tax of 15.3% on money taken as a distribution. 

When Should a Writer Elect S Corp Status for a Business?

This is a subjective question and will depend on your business and your goals. You need to be sure to take enough money in distributions to benefit from the advantages offered by an S corporation and offset the additional paperwork and fee associated with running payroll. In general, you will likely benefit from S corp status once your business makes at least $60,000 in earnings and $20,000 in annual distributions. These numbers are after paying business expenses. The IRS requires S corp owners to pay themselves a reasonable salary to ensure they aren’t lowering their compensation to avoid paying more on taxes — which would lead to loss of S corp status, fines, and even business dissolution.

Use our S Corp Tax Calculator to find out if an S corp is right for your business. Calculate your savings below:

S Corp Savings Calculator

Calculate how much you can save by choosing an S Corp tax classification

Recommended:

Are you a solopreneur looking to start your S corp or convert your existing LLC and start saving on taxes? Get your S corp started today with ZenBusiness.

Six Basic Steps to Start an LLC and Elect S Corp Status:

Step 1: Select a State

Step 2: Name Your LLC

Step 3: Choose a Registered Agent

Step 4: File the Articles of Organization

Step 5: Create an Operating Agreement

Step 6: Get an EIN and File Form 2553 to Elect S Corp Tax Status

Step 1: Select Your State

Step 2: Name Your LLC

If you don’t already have a business, you will first need to form one. You will need to provide your state with a unique name that is distinguishable from all registered names when you file your LLCs formation documents.

Our Business Name Generator and our How to Name a Business guide are free tools available to entrepreneurs that need help naming their business.

Step 3: Choose an LLC Registered Agent

Your S corp registered agent will accept legal documents and tax notices on your business's behalf. You will list your registered agent when you file your LLC's Articles of Organization.

Step 4: File Your LLC's Articles of Organization

The Articles of Organization, also known as a Certificate of Formation or a Certificate of Organization in some states, is the document you will file to officially register an LLC with the state.

Step 5: Create an LLC Operating Agreement

An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.

Our operating agreement tool is a free resource for business owners.

Step 6: Get an EIN and Complete Form 2553 on the IRS Website

An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business. 

EINs are free when you apply directly with the IRS.

Elect S Corp Tax Status

During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.

Steps to Take After Starting an S Corp

Once you formalize your S corp, be sure to get your financials in line so you are ready to begin operating.

For business banking, check out our guide on the best banks for small businesses.

If you need to build your S corp credit, read our guide on how to build business credit and get a business credit card through Divvy.

Recommended:  You’ve worked hard and deserve a break! If you make at least $20,000 in distributions, let ZenBusiness start your S corp, so you can focus on your business.

Writer Business Information

Writers can work in a variety of positions and jobs, such as working as novelists, freelance or content writers for clients and companies, copywriters, and grant writers, to name a few. As a professional writer, there are many ways to make a living. Since a great deal of writing work can be done remotely, it is a type of business that can operate from just about anywhere. With so many different ways to write for a living, it can be difficult to pin down how many writers are working in the US, but there are estimated over 45,000 authors and upwards of 150,000 content writers.

Why Most Writing Businesses Should Have a Legal Business Entity

Protection from liability is the largest reason a writing business should have a legal business entity. This will protect your employees in the event that your business is forced into legal action by a third party. For example, say you write freelance for multiple companies. After publishing one of your articles, they realize part of your content infringes on the non-disclosure agreement that you signed with them. The article is taken down, but the damage is already done as the information they were holding onto has been released and has affected their public image. They are suing you over the matter. Since your writing business is a legal business entity, the business itself can be sued, but you as an individual could not, so your personal assets would be protected.

The other reason is legitimacy. Having a legal business entity will make your business seem more official, which is likely to bring in new clients or assure those you work for that you are trustworthy. A legal business entity can be the difference between being selected to work for a large client or being passed over.

Is an S Corp Right for My Writing Business?

Whether your writing business is right for an S corp will depend on your long-term goals and how it matches up with the requirement to become an S corp.

The first of these requirements is that you must run payroll on all of your employees. This will include you as the owner, even if you are the only employee of the business. Businesses that have multiple employees will likely already run payroll, so this won’t be a problem. But businesses that don’t may find the cost of payroll to be an issue. Weigh the pros and cons of running payroll and the money saved as an S corp before deciding which way to go.

Another requirement is that all S corps can only have a maximum of 100 shareholders. Again, this may not be an issue for some businesses, but for those that want to grow with more investors, it may be a sticking point. If 100 investors seem too few, your business may want to pursue becoming a C corporation rather than an S corporation.

Finally, the owners of S corps are required to take a distribution of the business’ profits for themselves. In addition to the reasonable salary, you are recommended to take at least $10,000 in order to fully benefit from the tax advantages an S corp will give your business. If you would rather reinvest that money back into your business, you may be better off having your business taxed as an LLC.

At the end of the day, only you can decide whether an S corp will be right for your business.

Writer S Corporation Examples

Not all writing businesses will benefit from an S corporation. Here are two examples to help illustrate which types of writers should elect S corporation status.

Scenario 1:

First, imagine you run a business that supplies content writers to businesses that need them for projects. Including yourself, there are five writers that all contribute to the business. You have several companies that use your business regularly, so all five of you are constantly writing and completing projects. Since you hired your first employee, you have been paying a local accounting business to help you run payroll. Currently, your business has 40 shareholders, and this number isn’t expected to change within the next few years. With how fast-paced the work has become profits have risen considerably and you have even more potential clients you will be meeting within the next three months.

A business like this would be a strong candidate for becoming an S corp. Since you run payroll and have below the maximum number of shareholders, those will not be concerns. The distribution and reasonable salary would be the only obstacles, but as your business is seeing increased profits, they should be within your means.

Scenario 2:

Now imagine you are a novelist trying to make it your full-time job. Your first book went largely under the radar, but your latest was a New York Times bestseller and is looking to become a series. You work on your books alone in addition to your regular job, paying a company to do editing for you before release. With the money you are making off this new book, you are hoping to hire an editor as well as an agent to assist with public relations and advertising. Any leftover money can be put towards a new computer as yours is beginning to show its age.

This writing business may want to avoid becoming an S corp. Payroll can be costly, especially when you are the only employee and you clearly have plans to reinvest your profits which would be limited by taking a distribution. While you could always adjust and apply later, right now, an S corp would not be a wise decision.

Start an S Corp FAQ

An S corporation (S corp) is a tax classification that an LLC or a corporation can apply for that provides self-employment tax savings on distributions.

If you already have an LLC or C corporation, you can form an S corp by filing Form 2553 with the Internal Revenue Service (IRS).

S corps offer businesses tax advantages, and owners of S corps can save thousands of dollars on self-employment taxes.

While both LLCs and S corps benefit from pass-through taxation, they are not taxed the same way.

With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax. With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.

Both LLCs and S corps benefit from a provision in the Tax Cuts and Jobs Act of 2017 that allows qualifying owners of pass-through entities to deduct 20% of qualified business income (QBI) from their tax returns. However, for S corps, the deduction doesn’t apply to profits paid out as wages.

Your work as a writer will vary depending on your specialty or clients. Novelists, freelance writers, copywriters, and other types all have their own pay scales and averages to pull from. For example, the average salary of a copywriter is $47,580 while the average salary of a grant writer is $50,182. Check the pay scales and averages of your specific writing job before deciding on a reasonable salary for yourself.

A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employees' salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.

There’s no corporate tax rate for S corps. Instead, owners of S corps pay personal income tax on the company’s profits. This rate depends on each owner’s personal income tax bracket. 

In some states like California and New York, S corps may pay some form of tax at the corporate level.

No, your publisher would not be a shareholder by default. If they were interested you could let them become one, but the two positions are not shared.

Yes, but it will need to change according to the profits of your business from the relevant tax year. It is recommended you go over the change with an accountant before deciding.