LLC and S-Corp Requirements For Content Creators

As a content creator, the heart of your job is inherently creative—coming up with ideas, implementing them, and evolving alongside your audience and platforms. However, as you grow, so does your success, requiring you to begin seeing content creation for what it is: a lucrative business you must protect.

One of the best ways to protect your business and your profits from the IRS is to have an LLC or an S Corp. However, this is not a decision you should make lightly—you must first understand each label, what it means, and most importantly, how beneficial each can be to increase your potential tax savings.

The key to understanding what to do as a content creator lies in the reasonable salary figure. But first, it’s essential to clarify the basics.

Content Creators and LLCs

Before creating any company, your content creation is simple—just you and your creative endeavors. At this point, you qualify as a “sole proprietorship”—a tax label that means you are part of an “unincorporated business” by yourself.

This is an uncomplicated and straightforward situation; you are taxed like a regular employee and pay federal, state, and employment taxes as applicable. However, this also means your business does not have an identity—it is tied to you, and thus, in case of legal or financial trouble, all your assets will be at risk.

To protect yourself, you can create an LLC, which stands for limited liability company. This establishes your business as separate from you, meaning that your assets will be protected if you face any issue during your content creation career. You can be a single-member LLC or have multiple members.

Likewise—and unlike C-Corporations—LLCs offer “flow-through taxation,” meaning that the profits will pass through the LLC directly to the owners. Since the LLC does not pay taxes, you will avoid the dreaded “double taxation” and only be taxed individually.

However, that is where the money benefits end—LLC businesses pay the same amount of taxes you would as a sole proprietorship. To reduce your taxes, you might want to consider the S-Corporation label.

The S Corporation Status For Content Creators

After registering an LLC, you can opt for S Corporation status. This tax designation allows you to keep an LLC’s protection while helping you save thousands in self-employment taxes.

It works by identifying you as the owner and an employee of the business. As a content creator, the S corporation label recognizes you as a shareholder while addressing the hours of work you invest in your projects as something worthy of a wage—and a reduced self-employment tax.

However, to obtain and maintain the S Corp designation, you must meet specific requirements and adhere to a set of rules that may or may not benefit you, depending on your circumstances. The most important of which are payrolls and reasonable compensations.

Payroll Requirements for LLCs and S Corporations

The main difference between LLCs and S Corporations is their relationship with payrolls.

For LLCs, the payroll regulations vary between states, so you must check state and federal laws as applicable. However, the main point here is that LLCs don’t require you to pay yourself through a formal salary. Instead, you get the owner’s draw—your share of the profits, which will be taxed as personal income.

However, things change if you have the S-Corporation status.

S Corporations recognize content creators as “shareholder-employees,” with the employee part meaning that it is mandatory that you put yourself on the payroll and receive a wage. The tax benefit is that only this wage is subjected to employment taxes, while you can receive the rest of the profit as distributions.

For example, suppose you have a net income of $100,000 and employment taxes sit at 15%. In an LLC, this translates into paying $15,000. However, if you are an S-Corporation and your self-paid wage is $3,000, only this amount will be subjected to the employment taxes—which means you’ll pay $4,500.

As you can see, you can potentially save thousands in taxes. The caveat is that you cannot pay yourself any wage you want—it has to be a Reasonable Compensation.

The Most Important Payroll Requirement: Reasonable Compensation.

Reasonable compensation is the fair wage you deserve according to the work you provide. It doesn’t consider your profits, distributions, or desires—only what you do for your business and how it is valued.

As a content creator, you are bound to be the powerhouse of your business. When measuring your reasonable compensation, your time, effort, creativity, expertise, and talent are worth considering.

However, determining reasonable compensation is not as easy as assigning a number randomly or following a formula you see online. It requires following the steps lined up by the IRS and backing them up with verifiable data that you can show the IRS as proof.

For example, the IRS offers the “cost approach” to determining reasonable compensation. This approach involves studying the many different functions you perform in your business, measuring them, and assigning them a value. As a content creator, you spend time brainstorming ideas, recording content, editing it, managing social media, and performing many other tasks—what is the worth of it all?

Calculating your reasonable compensation unbiasedly, rationally, and reliably should be a comprehensive task performed with reliable data that can be easily proven—otherwise, rather than saving thousands in taxes, you risk facing off against the IRS.

LLCs or S Corporations?

Although the allure of S Corporations may be big, it is not a universal solution for content creators.

If you are starting as a content creator and your profits are still low, you should remain in a sole proprietorship and give yourself time to grow. Once you reach the point where your income is noticeably high, it’s time to decide between LLCs or S Corporations.

For content creators who are still small, remaining in an LLC might be the more suitable choice. During that time of growth, when your business barely makes revenue, the compromise of paying consistent, reasonable wages demanded by S Corps could stunt growth. On the other hand, an owner’s draw is flexible and can be readjusted according to profit levels, ensuring more efficient budget management.

However, calculating your reasonable compensation is the key to determining which option is more advantageous for you and your money. As such, before choosing between LLC or S Corp, you or your accountant should run a reasonable compensation report to help you pinpoint the most optimal wage you could pay yourself to comply with S Corp regulations.

Having this number at hand will help you do the math and determine which choice best fits your needs while ensuring your business is safe and protected in the face of any IRS inquiry.

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Sources

Crail, Chauncey (2024, June 13). S Corp Requirements: Everything You Need To Know. Forbes Advisor. https://www.forbes.com/advisor/business/s-corp-requirements/.

Hamann, Paul (2023, May 3). Maximizing Tax Savings for Digital Content Creators: Understanding Reasonable Salary for LLCs and S Corps. RC Reports. https://rcreports.com/blog/maximizing-tax-savings-for-digital-content-creators-understanding-reasonable-salary-for-llcs-and-s-corps/.

Internal Revenue Service (n/d). S Corporations. IRS. https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations

Internal Revenue Service (n/d). Sole Proprietorships. IRS. https://www.irs.gov/businesses/small-businesses-self-employed/sole-proprietorships

Ledingham, Jessica (2024, May 31). Reasons Why Content Creators Should Form An S Corp. Forbes. https://www.forbes.com/sites/jessicaledingham/2024/05/31/reasons-why-content-creators-should-form-an-s-corp/.