Do I Need an LLC for a TikTok Business?
Even if you started your TikTok account as a hobby, one viral video can quickly gain you thousands of followers (or more). More attention on your videos can create potential risk that you might not have considered. LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.
You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.
LLC Benefits for a TikTok Business
By starting an LLC for your TikTok business, you can:
- Protect your savings, car, and house with limited liability protection
- Have more tax benefits and options
- Increase your business’s credibility
Limited Liability Protection
LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.
TikTok businesses will often benefit from liability protection because of an increased risk for copyright infringement and various other intellectual property claims.
As with other platforms like YouTube or Twitch, a fellow TikTok content creator could claim that the content you create is too similar to some of their own content. Or, you could even face a copyright claim for playing a song in the background of your video.
Example 1: After acquiring a small business loan in order to redesign your business website, you experience a significant fall in revenue. As a result, you are no longer able to pay the loan back on time, and your TikTok business begins accruing debt. If the lending party was to file a lawsuit against you, you would not be found personally liable for compensating the claimant as a result of your limited liability in law.
Example 2: You partner up with a digital marketing firm in order to expand your TikTok business’s brand online. After not seeing an immediate increase in your sales, you refuse to pay the marketing company, which then files a lawsuit against you. Since your business is registered as an LLC, your limited liability in law will protect your personal assets from the claiming party even if your business is found liable in court.
Example 3: After your secretary does not respond to an email informing you that you are infringing on another business’s copyrighted content, a lawsuit is filed against your LLC. If your business is unable to compensate the claiming party, your personal assets will remain safe as a result of your business’s LLC classification.
An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.
To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.
LLC Tax Benefits and Options for a TikTok Business
LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.
The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.
Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.
S Corp Option for LLCs
An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).
S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.
The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.
In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.
We estimate that if a TikTok business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.
You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.
For questions about tax solutions for yourTikTokbusiness, we recommend scheduling a free tax consultation.
Credibility and Consumer Trust
TikTok businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.
Businesses gain consumer trust simply by forming an LLC.
A growing business can also benefit from the credibility of an LLC when applying forsmall business loans,grants, andcredit.
Northwest will start an LLC for you for just $29 (plus state fees).
