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  1. #1
    Full Member seven-link's Avatar
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    Question Incorporating your affiliate business?
    If you are making a descent sum of money in affiliate marketing, would you recommend incorporating it? What the pluses and minuses of doing so?

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    AM Navigator Geno Prussakov's Avatar
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    Quote Originally Posted by seven-link
    If you are making a descent sum of money in affiliate marketing, would you recommend incorporating it? What the pluses and minuses of doing so?
    If you incorporate as an S-Corp or an LLC in the States, you get a protection from personal liability for business debts, while paying pretty much the same income tax as any individual.

    Geno

  3. #3
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    For a single-person affiliate business (that is, a web publisher earning revenue from affiliate programs), incorporating is highly unlikely to provide meaningful benefits. (In contrast, every merchant should very seriously consider incorporating.)

    As an affiliate, you probably don't have any significant business debts, though you probably have accounts at Google AdWords and other pay-per-click advertising firms. Corporate or LLC status might allow you to switch from constant credit-card to a longer billing cycle at Google, but it's a bad idea to let your PPC charges mount up, even if you have "payment promises" to offset them. (In other words, don't run up a huge debt to Google AdWords, even if you're accruing huge earnings with some merchant's affiliate program. If your merchant defaults or starts reversing transactions, you could be bankrupt very quickly.)

    If you do try to borrow money or lease equipment, the lender will almost certainly ask for a personal guarantee anyway.

    If your business has employees, or engages in practices that might create a risk of lawsuits (for example, someone might theoretically sue you for defamation/libel), then incorporation might provide some protection if there is a lawsuit -- but you should buy insurance first, I think.

    Note that incorporation does not provide meaningful protection for the person who actually "does something" that is the subject of a suit -- if you injure someone while driving for your business, you will be personally liable even if the business is incorporated; if you make false and damaging accusations on your web site against someone and are sued for libel, you will be personally liable even if the business is incorporated.

    If your net income is over $100,000, or if your annual gross receipts are over $150,000, you should absolutely be talking with a tax advisor, preferably a CPA (Certified Public Accountant). If your income or gross receipts are much higher, then you should probably talk with a business and/or tax attorney. Of course, this is the worst time of year since most CPAs are busy with tax returns from February through April.

    Of course, I assume that you're maintaining clear records for your business, so you can survive any IRS audits or other financial disputes. A corporation or LLC would add to the record-keeping, paperwork, and government filings.
    Last edited by markwelch; February 22nd, 2007 at 03:34 PM.

  4. #4
    Full Member RickPlmr's Avatar
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    My financial advisor has been recommending that I incorporate because he says there are more options for tax deductions for an inc than a sole proprietor, and I only made a few grand last year.

    If things go as well this year as they have been going so far, then I'll most likely incorporate here in a few months.

    I'm a single-person affiliate business... well, my wife still thinks this is just a hobby, but I hope to change her mind on that opinion this year

  5. #5
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    Quote Originally Posted by RickPlmr
    My financial advisor has been recommending that I incorporate because he says there are more options for tax deductions for an inc than a sole proprietor, and I only made a few grand last year.
    Ask your advisor for more detailed information. It may be that once you reach a certain income level, it makes sense tax-wise for you to be incorporated.

  6. #6
    ABW Ambassador PatrickAllmond's Avatar
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    If you do do this don't fall for the old stereotype of believing that this will shield you from any liability. It doesn't. Even with a company that has a seperate entity you can still be pursued personally. Happens all of the time.

    I agree with your financial advisor. And I can definitely speak from experience because I have run an incorporated business since 1999 (not aff marketing related).

    I would say look at it from a "How serious do you take yourself, and how serious do you want to be taken" perspective. It sounds like you want this to be your full time business. Then create it a business and run it like a business. Other businesses that you interact with are more likely to treat as a legitimate business if you are really a legit business.
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  7. #7
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    The IRS says you can take a salary and the salary is subject to medicare, SSI and income taxes. You can then draw the remainder of the money and although you have to pay income tax on it, it is not subject to some of the other "payroll" taxes. There is no clear cut line as to where this will start to pay,but as Mark said, hire a CPA and let him do his magic but I would guess this would not pay off until you reach at least the 100k level.

  8. #8
    ABW Ambassador PatrickAllmond's Avatar
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    You have to pay yourself a realistic salary for the work you do - very subjective. You cannot pay yourself a $10,000 a year salary for IT consulting and take the rest as bonuses.

    What I do is pay myself my biweekly salary and withhold the necessary taxes. Then I occasionally give myself a bonus and only withdraw the state and federal income tax. However those bonuses are taxed at the highest level - 36.4% I believe.

    (all my posts in this thread come with the 'consult your tax adviser' disclaimer )
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  9. #9
    Full Member seven-link's Avatar
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    Talking Thank you for your help!
    Thank you for everyone's advice! I went ahead and set up meetings with a tax advisor and a lawyer. They basically said that I should either go with an S-Corporation (this would save me money on self-employment taxes, but require more paperwork and some more hassles) or an LLC which is easier to adminster, but didn't offer the same tax benefits.

    In the end, i decided to go with an S-Corporation because I figured that the extra hassle would be worth it in order to save a descent amount of money.

    Thanks again for everyone's help!

  10. #10
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    Quote Originally Posted by seven-link
    Thank you for everyone's advice! I went ahead and set up meetings with a tax advisor and a lawyer. They basically said that I should either go with an S-Corporation (this would save me money on self-employment taxes, but require more paperwork and some more hassles) or an LLC which is easier to adminster, but didn't offer the same tax benefits.

    In the end, i decided to go with an S-Corporation because I figured that the extra hassle would be worth it in order to save a descent amount of money.

    Thanks again for everyone's help!
    Seems like you already found your answers and created a S-Corp. I personally created a LLC last year. All the extra paperwork and taxes are worth the benefit of operating a LLC or Corp.

  11. #11
    ABW Ambassador netnow22's Avatar
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    Incorporate in deleware no INCOME TAX!

  12. #12
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    Quote Originally Posted by netnow22
    Incorporate in deleware no INCOME TAX!
    That is correct. Some states, like Nevada and Delaware, offer tax breaks for corporations such as no income tax and no corporate tax. However since I live in CA, if I were to create a LLC or INC in another state, I would have to pay extra taxes for filing out of my home state. It really depends on your business situation. I would recommend talking to an experienced lawyer before creating a INC or LLC out of your home state.

  13. #13
    ABW Ambassador netnow22's Avatar
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    Quote Originally Posted by Event-Mark
    That is correct. Some states, like Nevada and Delaware, offer tax breaks for corporations such as no income tax and no corporate tax. However since I live in CA, if I were to create a LLC or INC in another state, I would have to pay extra taxes for filing out of my home state. It really depends on your business situation. I would recommend talking to an experienced lawyer before creating a INC or LLC out of your home state.
    Well I Live IN SC and Have an LLC in Delware with a delaware address (through the coorporation company) and have many tax breaks with no tax burdens here in SC

  14. #14
    ABW Ambassador netnow22's Avatar
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    and besides 90% of the top 100 fortune 500 companies are located in Delaware! That is for a reason

  15. #15
    AM Navigator Geno Prussakov's Avatar
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    Quote Originally Posted by netnow22
    Incorporate in deleware no INCOME TAX!
    A little clarification must be made: this will apply to you only if you do not do business in Delaware [DE Division of Revenue explanation]

    Geno

  16. #16
    Affiliate Manager PetsWarehouse.com's Avatar
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    I think you have to register your out of state (or foreign) corporation in your home state, so you will pay corp tax in your home state as a foreign company.

    What I think you may be talking about is Del and maybe NV has no Corp franchise tax. That's the tax your avoiding but when you figure the registration of that foreign corp in your home which is where you do biz your paying there.

    If you setup a sub S corp you will pay tax on that corps profit at a lower rate on your personal 1040.

    Incorporating out of state is "the grass is always greener" but the IRS has a big lawnmower.

  17. #17
    Affiliate Manager cbsturg's Avatar
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    There's a fairly informative book called "INC. and Grow Rich" (playing off the name of Napoleon Hill's masterpiece). While it heavily promotes the services of one particular financial services group, it is fairly insightful into the different deductions that a corporation can provide over a sole prop. I would recommend the book as a decent starting point in understanding the costs and benefits of incorporation, and then go speak with several CPAs or tax attorneys until you find one that you think you can work well with.

    Like everything else, the more you know going into a business relationship, the better off you'll be. I'd take some time learning the lingo of the [tax] business and some general tax / accounting basics so you don't have one pulled over on you.
    Chris Sturgill
    "All my life I've had one dream, to achieve my many goals." - H. Simpson

  18. #18
    web dev with whiskers tn-morgen's Avatar
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    I've looked at NV corporations pretty deeply. I like them over home-state corps - especially after talking to a local attorney.

    You still have to register where ever you are most likely - at least a DBA, but NV has statutes in the NV Supreme Court and their Constitution (yes, constitution) that protect any board members'/owners' identity and property.

    I don't know about DE, but I lived in NV and worked for an attorney for part of that residence. So, that's where my "prejudice" comes from. Take it or leave it....

    There are a lot of "Inc farms" in NV, and I suggest talking with an actual attorney instead. Many will talk to you for free or you can pay them for an hour of their time by credit card over the phone. Go to the library where you are and get the nationwide directory of attorneys off the reference shelf and look up someone who works in corporate law. It always helps to talk to one of the farms, too. I got a lot of ideas from the one I talked to and it cleared up some confusion for me.

    You will also want to pay for a "resident agent" who keeps some business records in the state so your company has "residence" there. Besides, a weekend "corporate board meeting" in Las Vegas is always kinda nice

    I know that for me, I'll be getting my NV papers pretty soon. Just saving up the ready....

  19. #19
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    An additional benefit of creating even a two-person LLC with your spouse, for example, is that you can then shop for group health insurance.

    At least in NJ, it's not complex to create an LLC, and I imagine it's easier in other states. Nor is it complex on an annual basis - a quick online confirmation of the details of the company and a small fee does it.

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