Which type of LLC is the safest to choose for your ACX audiobook publishing business?
In the US there are different types of businesses. One of those simple forms is called an LLC, which stands for Limited Liability Company. The name already suggests the goal. It´s a business entity designed to keep your private capital separate from your business capital.
This is a good thing. When, for example, your publishing business gets sued for whatever reason, the worst thing that can happen is that your business goes bankrupt. But the money and capital you own as a person cannot be touched.
This is not the case when you are a sole proprietor in Europe. When you get sued, you are personally liable (responsible) to pay all the fines and debts caused by your company.
This and the fact that´s cheaper to create a business in the US, might already be enough reason to create an LLC instead of running your publishing business as a sole proprietor from Europe.
Don´t get me wrong, you can still receive the money from your US Business as a Management Fee as a sole proprietor. Only in you as a private person cannot be sued for your publishing activities, only your publishing LLC can be sued.
As a foreigner, it´s quite easy to set up a company through an online service. There are different types of LLCs. It´s not important to go all in detail through all of these in this article, but here is an overview.
⦿ Single Member LLC
⦿ Multiple Member LLC
⦿ LLC elected as a C-Corp
⦿ LLC elected as a S-Corp
When you create an LLC through an online service, without a partner, you by default end up with a Single Member LLC. This means that one person owns the whole LLC.
A single-member LLC is also called a pass-through LLC or disregarded entity for tax purposes. This entity protects your personal money and it´s an official registered US entity. But for US National tax-purposes, it´s disregarded, which means ignored. For tax purposes, it does not exist.
For a person in the US this means that all the income and the costs are passed-through their personal tax. For a foreigner (non-US resident) this means that all the income and costs are passed through the country where the person lives (or where the owning company resides).
Until now, no problem. But in our case, the only reason why we want to set up a business is to be able to create an ACX account, so we are allowed to create and publish audiobooks.
One of the requirements to be able to open an ACX account is that you (which can also be your business) is resident in one of these 4 countries:
US
Canada
UK
Ireland
When you have created an LLC (single-member LLC) as a foreigner, you have an entity that resides in the US. But now it becomes tricky.
In the ACX Tax Interview they ask the following question:
For U.S. tax purposes, are you a U.S. person?
If you own a single-member LLC as a foreigner, someone who doesn't live in the U.S, you have to select ´Individual´ for the first question and ´No´ for the second question. And this means you are not officially eligible (allowed) to create an ACX Account.
But, don´t worry. The workaround is to become a tax-paying business entity (=legal person) in the U.S.
Option 1)
An LLC with more than 1 member, has to be pay tax by itself, before passing it through the individual members. This makes it a tax-paying entity. But then you have to find a partner for your business. This can be your wife, or someone from your family or a friend. You have to split the profit (and losses) between all the partners.
Option 2)
Electing your LLC to be taxes as a C-Corporation. This transforms your disregarded entity for tax purposes in an entity that pays corporate tax in the US. The corporate tax rate is 21%. Your salary is considered as cost and can reduce the profit, which means you pay less tax in the US.
In this way, you can elect in the ACX Tax interview Business and Yes. You have to pay tax or do a tax declaration for the next 5 years if you elect your LLC to be taxed as a C-Corp. BTW: if you don´t make a profit, you also don´t pay a tax of course, but you still have to do the yearly tax declaration.
In my free training, I go more in-depth about why and how to do this. I also cover ways to reduce the total tax you pay, in the US and your own country together.
So don´t wait longer and subscribe for the free training here.
But for now, click to read the next article on which service to use to create your LLC.
Juan