Why I Formed an LLC for My Freelance Copyediting Business (aka, Adventures in Small Business Adulting)

by | May 3, 2021 | Business Talk

Woman with glasses and curly hair smiles at the camera next to her gray catI just took the exciting step of becoming an LLC, or Limited Liability Company. I’m now in the Vermont Secretary of State’s registry under Sheryl Rapée-Adams Copyediting, LLC, dba Cat’s Eye Copyediting. It took a week, a lawyer, and $600 to transform my side hustle into a official company.

The Benefits to Freelance Editors of Becoming an LLC

Forming an LLC happened in my third year as a freelance book copyeditor. In year one, I earned $4,000; in year two, I earned $16,000. I like this year’s trajectory even better.

I’m fifty-seven. Establishing myself in work I love that doesn’t rely on my aging body’s strength and vigor, as massage therapy does (my other line of work), is appealing and probably necessary.

One advantage of operating through an LLC business structure is that it protects my assets. As a sole proprietor, my business and I are, legally, the same entity. But as an LLC, my personal debt is separate from my legal debt

In addition, being an LLC is a necessary (though not sufficient) step to getting hired by some clients. Without an LLC, a website, and evidence of offering my services to multiple clients, some prospective clients will not hire me. I discovered this when I interviewed to copyedit a nonprofit organization’s publications. This small organization, whose work supports some of society’s most vulnerable people, was audited and fined by their state’s labor department for running afoul of something called the ABC test.

brown-striped cat sitting on a manuscript

“No, Yuki, that’s NOT your manuscript. Let the experienced copyeditor have it, please.”

The ABC Test: A Quick Journey into the Weeds

The ABC test is a set of criteria used to distinguish who can be hired as an independent contractor and who must be hired as an employee. The ABC test’s classification criteria are stricter than the IRS’s current test.

The ABC test applies if you live in a state that uses it or if your client is domiciled in one of those states. Some iteration of the ABC test is part of labor law in Vermont, where I live and work, as well as in California, Connecticut, Delaware, Illinois, Indiana, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, Washington, and West Virginia.

No labor department will come after us freelancers for violating ABC (in other words, being hired as an independent contractor rather than an employee). Nor does the ABC test pertain to independent authors acting as private individuals when they hire us. ABC applies only to corporate entities.

Our clients (again, publishers, book packagers, nonprofits – but not individual authors) risk audits and fines for misclassifying employees as independent contractors. That means they see hiring freelancers as inherently risky. One large publishing house is taking 2.2 percent of its freelancers’ fees to subsidize the company’s efforts to minimize its risk.

For gig workers putting in exploitive hours, and for those toiling as full-time-plus employees with no benefits, the ABC test is game-changing. But for independent professionals like me, this is a boulder in our work stream.

Freelancers in states using the ABC test are losing work. Some might lose their entire livelihoods. A copywriter or graphic designer whose work flows mainly from one corporate client, perhaps with years of satisfied, mutually reliant professional history together, is most vulnerable.

You’ll likely be hearing more about the ABC test soon. At the time of this writing, federal legislation titled the PRO Act has passed the House and is in the U.S. Senate. Its passage would enshrine the ABC test in federal law. Many believe this will create hardship and years of legal battles and amendments (read about it here).

Forming an LLC for My Copyediting Business in One Easy Step

Far from being a do-it-yourselfer, I’m known for being DIFM: do it for me. For peace of mind, I hired an attorney to ensure I set up my LLC correctly (just as I hope authors will hire me to copyedit their work to ensure a crucial task is done right).

My lawyer’s fee is a tax-deductible business expense. The LLC comes with others. Every year, I’ll file my annual report with the State of Vermont, a $35 fee. I’ll owe a minimum $250 in taxes to the state—and I’d better be earning enough to incur that tax liability. The business taxes I pay are deductible expenses. So is the fee for hiring a tax preparer.

Thanks to my small-business-savvy attorney, my digital paperwork is in order. Within a few days of hiring her, the state sent me certificates showing my ownership of Sheryl Rapée-Adams, LLC, dba Cat’s Eye Copyediting.

I won’t have to file a business tax return for copyediting, though. I learned from my lawyer that a sole proprietor LLC is “invisible” to the IRS. As a sole proprietor LLC, I’ll continue reporting my income and expenses on my personal tax return. I recommend talking with a tax preparer about compliance and other grown-up terms like Schedule C.

a black-and-white cat lies next to a pile of papers

“Yes, Ru, style sheets ARE a lot of work, especially when you have a house style guide, too.”

What It Means to Be a “Book Copyeditor, LLC”

My life hasn’t changed much since becoming an LLC, but there are some differences.

  • No longer will I deposit copyediting fees into my personal checking account. I opened a nearly no-cost bank account at the credit union where my husband and I do our banking. My debit card is on the way.
  • I’m researching the simplest, cheapest portals for accepting payments online.
  • I’ve sent updated versions of my form W-9 to clients with my new EIN (Employer Identification Number) instead of my Social Security number.
  • To buy groceries and pay personal bills, I pay myself from the business account. Or, in bookkeeping speak, I “take a cash draw.”
  • My new business cards are being printed. I’ve updated my résumé, website, and social media presence to show the LLC. A client has already made the first automatic deposit into my new business bank account.
  • I hired a website designer to create my website. Jace races to the rescue when he hears my anguished cursing of digital woes from forty miles away. Supporting small businesses helps their proprietors and the economy, and I can tell you that we microbusiness people are grateful for the work.
  • Some legitimate steps are fun, such as creating a logo. I mean, look at mine. I asked a massage therapy colleague who used to be a graphic designer to create this homage to the late, great Sammy the Serpent.

The logo for my book copyediting LLC, Cat’s Eye Copyediting.

Maybe you prefer to do these tasks yourself. For those of us who hire expert help, the fees are tax-deductible business expenses.

Am I an adult yet? I’m not so sure about that. I’m still working from home with no need for anyone to know what cuddly duds I’m wearing while talking baby talk to the cats and turning in meticulous work ahead of deadline. But I’ve advanced my commitment and structural support for doing my best work at the copyediting I love.

Sheryl Rapée-Adams is a catmom and copyeditor (www.catseyecopyediting.com) who blogs at www.massagevermont.com and at www.thegardenat485elm.org, as it seems she has a collectively tended community garden growing on her lawn. She lives in Montpelier, Vermont, with her husband, Chris, and felines, Yuki and Ru.