I've read some things on prior discussions that lead me to post this as a talking point. As a new author, I had to make decisions on how I should set up for taxes and in what name. On advice from my CPA and friend, I chose to set up a corporation name - Cosas Finas LLC - with my husband (we live in a community property state). My CPA did all the paperwork and made this transition easy for me.
If you want to separate your real name from your writer's life, you could set up a corporation name or pen name for your copyrights. I've seen authors do this, but your publishing contracts should reflect the names you are doing business under.
But here's the nuts and bolts of the tax angle----According to my CPA, if someone earns more than $25,000 per year, they risk overpaying on self-employment (SE) taxes. (An author friend of mine realizes this, but likes to take the refund she gets and travel with her husband. Personally, I'd like to keep the money I have up front, but again, this is a personal choice.) My CPA friend says he sees many SE people paying more in taxes than regular income tax.
According to him, the way it works (to avoid overpaying on SE tax) is this: An author or any SE person can file an election for an LLC to be taxed as a corporation. Corporations and their owners aren't subject to SE tax. Without this election, the LLC owners will definitely incur SE tax because the default status for single-member LLCs is sole-proprietor and for multiple-member LLCs is partnership, both of which subject their owners to SE tax.
According to him, understanding this election is critical.
In addition to this election (the 8832 election), he also recommends the 'S' Corp election (a 2553 election), so that the resulting corp tax return doesn't overpay tax. In other words, no "double tax" (both to the corp and to the owners). All taxable income flows through to the owners' 1040, but without SE tax.
Coming from an accounting background many years ago, this made sense to me and I wanted to share what I'd learned. Many of my author friends had not heard this and looked into it to make their own changes.
Anyone else have any thoughts?