April 22, 2016
Publishers Weekly spoke with Tax & Business Services Partner Rob Pesce about when and why it makes sense for independent authors to consider forming a business entity.
By Alex Palmer
With the recent end of tax season, many self-published authors have likely done some thinking about whether they could be saving more money or better protecting themselves from IRS scrutiny. They may have heard from their accountant or other authors that they can do just that by formalizing their publishing work under a business entity.
"Income from an S corp is not subject to Medicare tax," says Robert Pesce, a partner in the media and entertainment group at Marcum LLP. "Only the salary an author is paid by the S corp is subject to the tax. So, an author with an S corporation who is earning $1 million and pays him- or herself $200,000 (a very reasonable salary at that earnings level) will only pay $6,000 (3%) in Medicare taxes, while an unincorporated author (sole proprietor) would pay approximately $30,000. The remaining $800,000 S corporation profit will pass through the corporation to the author, but it will be subject only to regular income taxes (federal, state, and local), not to Medicare tax. That's a $24,000 tax savings."