Should You Incorporate for Your Blog Business? My Thoughts as a Blogger that’s Incorporated

I just had a call with my accountant and am scheduled to meet with an advisor at my bank this evening.  Hence, this topic came to mind.  I’ve fielded many questions over the years about incorporating a blogging business.   While I’m not an expert, my content publishing business is incorporated and so I thought I’d share my thoughts on the subject.

Looking back I incorporated way too early for my blogging business.

Before I get into the pros, cons and tips of incorporating your online business, I want to set out a few things just so you know where I’m coming from.

First, while I’m a lawyer, I’m no longer practicing law and I never got anywhere close to practicing corporate law. This entire post is information only and is presented more from a practical and financial perspective than a legal one.

Second, I’m located and my blogging business is incorporated in Canada.  Every country has its own corporate entity structures, options and offerings.  I can only talk about my experience incorporating my blogging business in Canada.  That said, I suspect some of what I say will apply to bloggers situated in other countries.

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Why did I incorporate so early?

There’s a simple explanation for this.  I had an existing corporation that was set up as part of my personal law corporation.  No, I do not use my former law corp.  Instead, under the advice of my accountant, I had a corporation that was a shareholder of my law corp.  Don’t ask me why, I just did because I was told it was a good thing to do.

The end result is I had this corporation available to use so I used it.  I had to pay accountants to handle the accounting anyway so I set up my online business under it.

Had I not had that corporation sitting around and knowing what I know now, I would not have incorporated so quickly.

In fact, a while ago I read a great article suggesting it does not make financial sense in Canada to incorporate until you have at least $500,000 annual revenue.

I tend to agree with that.  Why?  Because maintaining a corporation is expensive.  The accounting fees and bookkeeping fees add up.  It’s far more costly than paying to have personal tax returns prepared.

Back in during my early days blogging, the annual accounting fees was around $5,000 CAD.  Contrast that with $400 for my personal returns.  Big difference.  When you’re making under six figures, that $5,000 is a big deal.  Moreover, I doubt any financial benefits of having a corporation made up for those $5,000 accounting fees.

Fast forward to present day and my accounting costs have gone way up but that’s because I also pay for all bookkeeping, I hired a much better accounting firm and my business is a tad more complex than it was 6 years ago.  Despite my annual accounting fees hitting $15,000 plus for my company, I have no doubt that operating my business as a corporation benefits me far more than the $15,000 accounting fees and that’s because now that my revenue is in excess of $500K per year, I can enjoy benefits of being incorporated.

Benefits of incorporating (as I understand them)

Accrue wealth faster thanks to a lower tax rate

In Canada, the corporate tax rate is far lower than personal income tax rates. Therefore, one decent tax planning strategy is to keep as much money and investments in the company as possible.  Those profits are taxed at low rates whichg can then be invested. In retirement when I have no income, I can dribble accrued cash out at which time I’ll pay personal income taxes.  It’s a great retirement vehicle.

That said, there have been rumblings about limiting how much wealth can be tied up in corporations like mine.  After all, there’s an argument to be mad that it’s unfair that just because I have a company I can accrue assets much easier because taxes are far lower.  For example, if my company has a $100K profit, it’s taxes around 15%.  If I pay out that $100K, it’s taxed around 35% or something like that.  More if I’ve paid out more to myself.

There are probably a myriad of other advantages that I don’t know about.  All I know is that this benefit doesn’t outweigh the cost of incorporating until revenue approaches $500K.  IMO, Garth Turner is right about that.

Liability protection

A big reason many businesses incorporate is to protect the individual owners’ from any liability.  It’s a good reason for many businesses to incorporate.  Think restaurant or bungee jumping company or carnival or lawyer.  If something goes wrong, the individual owners’ personal assets are protected.  However, blogging isn’t exactly a high risk pursuit.  I’m not saying there’s no risk, but it’s low.  Besides, in my case, much of my net worth is tied up in my company. If my company gets sued successfully into oblivion that’s gonna hurt my financial situation.

Income splitting

If your partner or spouse and/or kids work for you, you can pay them which adds to the household income.  Moreover, with payroll set up, you can remit to the CPP (Canadian Pension Plan) so that partners can receive a pension at 65 as well.

Income splitting, as it was done for years in Canada, is now over. It used to be partners who were shareholders could receive salaries and dividends without much contribution to the enterprise that would reduce the household tax bill.  In recent years, the Canadian government ended this practice.  Partners/spouses can still get paid and receive dividends, but the remuneration must reflect their actual contribution and the remuneration must be at market rates.  In other words, you can’t pay a spouse $350,000 per year for balancing the checkbook once a month.

Lend/borrow money

If ever I needed a lump sum of cash, my company could loan me money which I personally would have to pay back at 2% interest.  It’s basically a tax-free payment.  The only conceivable situation where this would make sense is if I had an investment opportunity such as a vacation property but couldn’t borrow personally for the down payment. In theory, the company could borrow the downpayment, lend the funds to me personally at 2% per year interest.   It’s not likely I’d ever do this but it’s nice to have options.

There are probably additional benefits I’m not aware of.  This article is not meant to be exhaustive but instead explain my experience running my content publishing business behind the veil of a corporation.

Disadvantages

Expensive

My accounting and bookkeeping cost is around $15K per year.  That’s a lot of money.  It’ll probably keep going up.  To justify this, you seriously need to financially benefit a great deal to make up for that cost.

PITA if you do it yourself

If you do your own taxes and bookkeeping, it’s way easier to prepare personal income tax returns than corporate returns.  There’s no way I could do a corporate return, nor would I want to.  It’s time-consuming and confusing.

Mistakes made

Dividends

Other than incorporating too early, one big mistake I made in the early years was paying myself more in dividends than salary.  That was a mistake.  I paid in dividends because it was easier.  I didn’t have to complete the paperwork involved with a formal payroll.

That was a mistake because in Canada, you can only accrue room in registered retirement accounts from a salary.  For a few years my salary was super low so I didn’t accrue as much room in registered retirement accounts as I could.

I’ve since corrected this and now pay out a salary to maximize retirement account contributions.

Paying for extended health insurance

For the first several years, I paid for a small business health benefits package.  In Canada, healthcare is paid for but you can pay extra for things like dental, chiro, massage, vision, etc.  I thought those things were important but when I tallied up the value of services we used, including dental, it was less than the premiums I paid.   And yes, we all go to the dentist regularly.  Now we pay all of this out of pocket and actually save money.  Go figure.  Actually, it’s not go figure. Insurance companies aren’t in the business of losing money.

Health benefits plans are really geared for larger employers to attract and retain employees.  They come in handy in the event there’s a huge dental bill, for instance.  And while we risk having to pony up for a big dental bill, the regular cleanings for four of us is less than the cost of insurance.

I’ve since canceled this insurance and instead beefed up my disability and life insurance policies.  Those are far more important.

I’m a HUGE proponent of insurance, but only for catastrophic events.  Paying dental costs is not a catastrophic risk.  Getting brain damaged in a car accident so I can’t work anymore is and that’s where a hefty long term disability insurance policy comes into play.  FYI, you may have a long term disability insurance policy but ensure it’s to age 65.  Most are only two or five years of benefits.  That could leave you without income if permanently injured and can’t work.  I pay extra (and it’s a lot more) for a disability policy to pay out until I turn 65.

Look into this stuff yourself in your country or jurisdiction

Canada, for instance, does not have the LLC entity that is available in the US.  I wish it did.  While I don’t know a whole lot about LLCs, they strike me as an excellent option for many small business owners including bloggers.  You enjoy many of the benefits of a corporation but it’s much simpler and less expensive to maintain.

For the life of me I don’t understand why Canada can’t create a similar offering.  In Canada, you either run as a sole proprietorship which is basically running all business expenses and revenue through your own wallet or you have to pay handsomely for a full blown complicated corporation.

FAQ

Over the years I’ve fielded a few questions about accounting as a blogger.  Here they are.

Do you create a separate corporation for every website you own?

No, I don’t.  That would bankrupt me.  At a minimum, it costs $4,500 per year to pay an accountant to handle corporate returns.  Usually it’s more.  I hope to never have to create another company.

What bookkeeping software do you use?

I use Quickbooks. When I switched accounting firms, they strongly suggested I get everything set up on Quickbooks.  At first I resisted, but ultimately I listened to them. I’m sure glad I did.  Quickbooks rocks.  It syncs with my business bank accounts, company credit card and Paypal.  I barely have to do anything.  Each quarter my bookkeeper asks me to categorize some new expense items. That takes me about 10 minutes.  Other than that, much of the process is totally automated.

What is your accounting and bookkeeping workflow as a blogger?

It’s super simple but that’s largely due to me also paying my accounting firm to do all the bookkeeping. Bookkeeping is a time-consuming process, even with Quickbooks.  I attend to accounting matters quarterly and then at year end.  Because I take care of everything quarterly, the year end is fairly simple and takes up about two hours of my time.  Pre-Quickbooks and bookkeeper, I didn’t do anything all year and then come tax time, I’d spend days putting everything together for the accountant.  Those were rough days.

What credit card do you use for your business?

I like the American Express Platinum.  It’s a great card for two reasons.  First, because it’s a charge card, there really isn’t a limit. Well, there is but it’s very high.  It’s not like a credit card that usually has a lower limit.  If my monthly expenses jump one month, Amex handles it.

The other reason I love Amex is the rewards system is super simple.  I can use points for any travel expense.  I’m not subject to blackouts or membership numbers or any of that administrative hassle.  I book my trip as I would on the Amex and them call Amex to apply accrued points to those travel related purchases.  It’s super simple. Moreover, Amex is really cool about what is considered a travel purchase.  I’ve redeemed VRBO bookings and RV rentals in the past.

Do you have a US account in Canada to receive revenue paid in US dollars?

Yes I do.  My bank advisor set this up because he can get a much better conversion rate and lower fees by converting at some internal bank desk than converting it as the funds are deposited in my account.  It costs almost nothing to have US currency bank account so this comes in handy.

Do you have a document for your spouse so that she can jump in and run the business in the event you die or are incapacitated?

Yes, I do.  I put one together about 18 months ago. I suggest you do the same.  I wrote about exactly what I put together here.

Do you write off every product you review on your websites?

No, I don’t.  I’ve talked to my accountant about this and I do my best to follow the spirit of the law in this regard.  I write off some products I buy and some I don’t.  The test I apply is whether I use the product for personal purposes or whether I bought it primarily for a website.  IFor example, I did  review of a bike rack I own and use on Cyclebaron.com.  I never wrote that rack off.  I use it personally. I just happened to write a review.

On the flip side, for my smartwatch site, I write off most of the watches I buy except for the one I wear daily.  I wear the Apple Watch 5 daily. I paid for it personally.  The rest I never wear and bought them for the site.

Basically if at time of purchase my primary purpose for buying it is to review it for a website, I write it off.  If I have it already and use it personally and then happen to review it, I don’t write it off.

It’s the same with hotel reviews I publish. I don’t write the cost of the hotel off.  I would have taken the trip anyway.

Why am I so conservative about writing off business expenses?  Because I don’t want to be penny wise, pound foolish.  The last thing I want is to be audited over saving $50 from some write-off.  If an auditor came along, I can easily explain the smartwatches because of the site and the fact I have 30 of them.  However, it would be a lot more difficult to explain writing off my new sneakers that I reviewed on a blog when there’s only one sneaker review (the only pair I own).