How and where to incorporate your affiliate marketing business

Face it: Affiliate marketing is a business. Even if it started out as your hobby or personal project, if you’re promoting affiliate programs on your site, you’re running a business, complete with profit and taxes.
And, for any business, a big question is: Should I incorporate my affiliate marketing business? And if so, how? And where?
What’s it mean to incorporate your business?
Let’s start at the start. What does it mean to incorporate your business? Well, it’s slightly different depending on where you live. For the purposes of this article, we’ll look at incorporating in the United States.
When you incorporate your small business in the U.S., you’re changing it from a sole proprietorship (where you’re the proprietor) to a group ownership. That implies that the company also has (or can have) a board of directors and various officers. But those other parties aren’t necessary. You can incorporate even if you’re the only person on the payroll.
Why?
Protection. If you’re the sole proprietor of your business, you’re liable for everything — all loans, all legal judgments, all problems of all sorts. But when the company is incorporated, you’re only responsible for the amount you’ve invested. If the company is ever sued, then, you’re at less risk if you’re incorporated.
Credibility. Being incorporated means adding “Inc.” or “LLC” after your business name. Besides looking terrific on your business cards, that gives you the chance to negotiate with other businesses or consumers from a more professional and respectable position.
Longevity. When you incorporate, the business technically exists as its own individual. Therefore, even if ownership or management changes, the business lives on (so long as it’s turning out revenue and meeting all its financial obligations).
Credit rating. A corporation has its own credit rating. It’s not dependent on your personal credit rating or any of the other officers. That means, of course, better chances to get loans and expand your operations (which should be your goal).
Tax benefits. Last but definitely not least: This is the reason most small businesses incorporate. In the U.S., corporations are taxed at a lower rate than individuals. Much of this is high-level: Corporations have no limits on amounts of losses they can claim, whereas sole proprietorships can claim a maximum of $3,000 each year.
But note that “unless you make more than $120,000 a year, incorporating your business for tax reasons doesn’t make sense,” according to Susan Ward at About.com. “And you need to bear in mind that incorporation is an additional expense.”
How?
So you want to incorporate. How’s it done? It’s not that tough. You have to file “articles of incorporation” (this is also called a charter or certificate of incorporation) with the appropriate state office, and pay the fee, which sometimes is less than $100 but can be as much as $1,000.
Head over to your local government center to get the process started. You can also incorporate your affiliate marketing business pretty easily online with the use of services like infotaxsquare.com and incorporate.com.
Where?
Where should you incorporate your business? Do you have to incorporate in the state you live? And why would you want to incorporate elsewhere?
The answer is yes, you do have to incorporate in the state you live. But you can also incorporate in other states. This would be done to take better advantage of some of the benefits listed above. Most small businesses incorporate in Delaware, for example, because transfer of ownership is easiest there.
What you shouldn’t do is incorporate in another state with the idea that you’ll pay fewer taxes there. It doesn’t work that way; you’ll always have to pay taxes to the state where you do business. Trying to avoid that reality is the wrong way to approach business in the first place.
Questions and comments
Have you incorporated your affiliate marketing business? If so, what was your experience? Has it offered any benefits, or are the fees a bit more than you’re comfortable? Sound off and let the CAP community share your experience.