I did this for two reasons. One, because the taxes I pay on the money I earn for the company is less than the taxes I would pay if I claimed it as personal income.
Two, because if [knock on wood] I created a user manual or other kind of documentation for a company and that company was sued for their product, I couldn't be "personally" included in that suit. As an S-corporation, my personal assets are separate from my company's assets.
Types of Corporations
In the United States, there are three ways a writer can set themselves up as a corporation that will be approved for the IRS. Schedule C (Sole Proprietor), Partnership, or as a Corporation (either S corp or C corp)
Schedule C or Sole Proprietor income is weaved into your personal return and is probably most commonly used by writers or other small businesses. On the downside, if your "corporation" is sued for any reason, your personal assets are attached to the corporation.
Partnership means just that. You and another person set up a corporation as partners. This probably works best if you are part of a writing group or team.
Follow the Numbers
File for a Federal ID number and use it. This number is also called an EIN - Employer Identification Number. As soon as you file your articles of incorporation, open a business account. All of the income you earn as a writer should be deposited into a corporate bank account under your company's federal ID number.
Do not mix your company income with your personal income. Pinch your pennies somewhere else. Bite the bullet and pay the service fees for a business account. If you don't you won't be able to track your money properly and, most of all, you'll give the IRS a great reason to audit you.
All the income I earn as a writer, whether it's from fiction or non-fiction goes into my corporate account. I keep my Federal ID number (the EIN) and use that instead of my social security number on contracts. This lets me maintain my lower tax status.
It would be so easy to just lump all the money into one account because you're going to spend it anyway. Don't be tempted. You have to follow proper accounting procedures and show the money coming in as income to the company and going out as payroll to you.
