Should I Open an LLC Business for My YouTube Channel?

Creating YouTube channel content — Photo by Chase Chappell on Unsplash

If you plan to run your YouTube (YT) channel like a business, monetize it if it becomes successful, and/or deduct your expenses from any revenue earned from the YT channel, you should open an incorporated business for it. Business incorporation provides tax benefits and protection from legal and financial problems that may develop during the operation of your business. Moreover, it will also give you more credibility as a business. Plus, if your business becomes a source of significant revenue, you may want to use it as collateral for a loan, and that will be much easier if your business has credibility and is incorporated. Let’s review some of the reasons why YT channel operators may choose to form a limited liability company (LLC) for their YT channel.

Business Entity Formation

There are several business entity formations that YT channel owners/operators can choose from when incorporating their business. The easiest to form and most popular with businesses operated by one person are S corporations and LLCs. These are all pass-through corporations. The income earned from these business entities is recorded on the owners’ personal tax returns. This means that they are taxed at the individual’s personal tax rate. To avoid paying personal taxes on the income earned from the YT channel, the owner/operator may consider forming a C corporation. C corporations are great because they are eligible for numerous tax breaks and deductions, provide legal and financial protection, and can retain their earnings. They do require more work (e.g., financial filings, annual meetings, more paperwork to set up) though. Some owners/operators may not have the time to do all the required work necessary to maintain their C corporation status. The solution to this quandary is running an LLC with a C corporation tax treatment. The LLC is easier to operate, requires less paperwork to set up, and has fewer administrative requirements than a C corporation. Most importantly, this election enables you to take lots of tax deductions (e.g., research and development, education, market exploration), retain your earnings, hire yourself as an employee or an independent contractor, and pay US$0 in taxes.

Tax Benefits

Image of IRS income tax forms for an LLC — https://www.pexels.com/th-th/photo/6863175/

The best business entity for an owner/operator of a YT channel is an LLC with C corporation tax treatment. This kind of LLC allows you to retain earnings from your YT channel so that you don’t have to pay taxes on them until they are disbursed to you. It also makes your business eligible for many tax deductions including life insurance, child care, education, medical, and retirement plan contributions. In addition, your C corporation can hire you as an independent contractor or employee. Best of all, your LLC with C corporation tax treatment has fewer administrative requirements than a C corporation but all the benefits (except for issuing shares in your company).

Legal and Financial Protection

Man stressed out over business documents. — https://www.pexels.com/th-th/photo/7534773/

Incorporated businesses provide you with legal and financial protection. If your business incurs debts that it cannot pay, your creditors can go after your business, but not your personal assets. If you are sued for copyright infringement, and you lose the lawsuit, the plaintiff can only take the assets belonging to your business, not your personal assets. Since YT channel operators have been sued for copyright infringement (e.g., content, music, images), have defaulted on contracts, and been unable to pay their debts, this protection enabled the business owners to limit the damage to their businesses.

Final Thoughts

If you plan to treat your YT channel like a business or earn money from it, then you should treat it like a serious business. Incorporate the business and give yourself the best tax treatment status possible – LLC with C corporation tax treatment status. In addition, to insulating you from the problems that may afflict your business, the LLC with C corporation tax treatment gives your business more credibility, allows you to withdraw funds from it in three different ways (i.e., as an owner, independent contractor, employee), and makes it clear that you are operating a business.

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Alan Chen

Alan Chen, CEO of FreeCashFlow.io and licensed CPA. With over 11+ years of service in the Accounting and Finance industry. Alan graduated with a masters of accounting at the university of Alabama, began his career at Ernst & Young (Big 4 – E&Y) and Riot Games (creator of League of Legends) and has moved into helping online entrepreneurs like yourself save millions in taxes.