In recent years, OnlyFans has become an excellent means for content creators, influencers, and entertainers to earn income from a dedicated fan base. OnlyFans is a social media platform with a paywall, allowing you to earn income directly from all your subscribers and followers. But since OnlyFans is a newish platform for creators, individuals considering it a source of income often wonder what it means for their taxes.
Are you self-employed? Or do you have an LLC for your OnlyFans? That will determine your tax liability. While you don’t needan LLC for your OnlyFans, having one can help with taxes, because it protects your personal assets with limited liability. The advantages of setting up an LLC for OnlyFans are undisputed, but it might not be for everyone. This article helps you determine if you need an LLC for your OnlyFans.
How Only Fans Works
OnlyFans is a content subscription service where fans can pay to subscribe to their favorite content creators. The service allows content creators to set up their own subscription tiers, with different prices and benefits for each tier. Fans can pay for a subscription using their credit card or PayPal account and cancel their subscription anytime.
Content creators can use OnlyFans to monetize their content, whether it’s behind-the-scenes footage, exclusive photos, or anything else they want to share with their fans. OnlyFans takes a 20% cut of all subscriptions, and content creators can withdraw their earnings anytime. OnlyFans also takes extreme steps to ensure privacy — the content can’t be shared beyond the platform’s firewall.
Some content creators use OnlyFans as a tip jar, where fans can pay for content they’ve already created, such as videos or photos. Others use it to fund their work by setting up subscription tiers where fans can pay to access exclusive content. While OnlyFans can be used for all forms of content, it’s primarily known for adult content.
Starting an account is pretty simple if you're a content creator interested in using OnlyFans to monetize your work. First, you'll need to provide your name, email address, and password. Once you've signed up, you can start creating content and setting up your subscription tiers.
Once you start generating income from your OnlyFans account, you must declare that income to the IRS and pay taxes. That’s when you need to consider if you’re declaring the income as a sole proprietor or a limited liability company (LLC).
Sole Proprietorship for OnlyFans
A sole proprietorship is the most common form of business in the United States. It is also the simplest and least expensive type of business to set up and maintain. A sole proprietorship is a business owned and operated by an individual. The owner is the sole decision-maker and is responsible for all aspects of the business. The owner is also liable for all debts and obligations of the business.
Setup & Maintenance
The primary advantage of sole proprietorships is that they’re easy to set up and maintain. There is no need to file any paperwork with the government or pay any fees. All you need to do is register your business with your local government. Another advantage is that sole proprietorships have fewer regulations and requirements than other types of businesses. This means you have more freedom to run your business as you see fit.
Liability & Safety
The primary drawback of a sole proprietorship is that you are personally liable for all debts and obligations of your business. Meaning, if your OnlyFans business fails, your personal assets could be at risk. Furthermore, if you set up a sole proprietorship for your OnlyFans, you are personally liable if your company is sued, which again, can put your personal assets at risk. This makes sole proprietorships riskier for conducting business.
Most people with OnlyFans accounts file as a sole proprietorship because it’s easy. But it’s also more expensive in the long run. Under a sole proprietorship, your income is reported on Schedule C of your Form 1040, and all expenses deemed necessary and essential to your business can be deducted come tax time. Your net income will be subject to federal income taxes and self-employment taxes.
You are responsible for paying self-employment taxes at a tax rate of 15.3%. This rate breaks down to a 12.4% Social Security tax and a 2.9% Medicare tax for the first $137,700 net income. An additional 0.9% for Medicare may apply if your income exceeds $200,000. This tax rate is higher than traditional payroll taxes, where the employer and the employee each pay 7.65% for a total of 15.3%.
To summarize, sole proprietorships are certainly easier and have fewer regulations and requirements, but you are also personally liable for all debts and obligations, and your personal assets can be at risk if you’re sued. Sole proprietorships may be cheaper to establish but more expensive in the long run because you have to pay more taxes.
Limited Liability Company (LLC) for OnlyFans
A limited liability company (LLC) is a corporate structure in the United States whereby the company members are not personally liable for the company's debts or liabilities. It is a hybrid business entity that combines the characteristics of a corporation with those of a partnership or sole proprietorship. An LLC is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions.
Liability & Safety
The main advantage of an LLC is that it limits the personal liability of its owners, i.e., the owner of the OnlyFans account. If your LLC is sued, your personal assets are typically not at risk. The LLC is treated as a separate legal entity from you. So, if your LLC is sued, the plaintiffs can only go after your company's assets but not your personal ones.
Another advantage of an LLC is that it offers flexibility in how the company can be structured and operated. For example, an LLC can be set up as a partnership, with each owner having an equal say in company decisions. Or, the LLC can be set up as a “manager-managed” company, in which a small group of owners makes decisions on behalf of the company.
An LLC also provides greater flexibility at tax time. LLCs can file as a sole proprietorship or as an S Corporation. If you are not generating high income through Only Fans, carrying on as a sole proprietorship may make the most sense, but if you are earning big money, an S Corp can save you bundles when taxes come due.
As an S Corp, you will no longer have to apply the self-employment tax rate. Instead, you will pay yourself a reasonable salary, subject to the 7.65% you would be responsible for as an employee. Anything you earn above and beyond that salary will be treated as business income. This means that becoming an S Corp could provide significant tax savings.
If you decide to establish your business as an LLC, you will have to pay the required and state-specific fees when filing both the initial and annual paperwork, but you can outsource this task to a registered agent, so you do not have to worry about going through these documents on your own. All things considered, registering an LLC for your OnlyFans business can protect your personal assets, offer greater flexibility, and reduce your tax burden.
Benefits of LLC over Sole Proprietorship for OnlyFans
There are many benefits of having an LLC for your OnlyFans business over being a sole proprietor. First and foremost, an LLC offers limited liability protection for its owners. If your OnlyFans business is sued, you will not be personally liable for any damages. This protection is not available to sole proprietors.
Another benefit of having an LLC is that it can help you separate your personal assets from your OnlyFans business assets. This is important because if your OnlyFans business is sued, your personal assets will be protected from seizure. This is not the case with a sole proprietorship, where your personal and business assets are considered one and the same.
If you’re earning a significant amount from your OnlyFans account, registering as an LLC can also help you minimize your tax burden considerably, especially since you no longer have to pay a self-employment tax at the rate of 7.65%. If you’re just starting out, a sole proprietorship makes sense. But once you start racking up subscribers, you should consider switching to LLC.
Steps to Become an LLC
- Secure a business name.
- Run your chosen name through a search tool to ensure availability and that it isn’t covered under trademark.
- Determine what documentation is required by the state in which you will be operating. At the very least, you’ll need to provide the following documents:
- Business name
- State in which you’re operating
- If you’re not located in the state where you’re registering your LLC, hire a registered agent working in the state of operation.
- The agent will receive and file the paperwork on your behalf.
- Provide the agent with all the information they need.
- Create an LLC Operating Agreement and fill out the state’s Articles of Organization form.
- Obtain the Employer Identification Number (EIN) for your business.
- Pay the LLC Filing Fee.
- Complete the annual report and pay the annual (or biannual) fee regularly.
The steps to becoming an LLC may sound complex, but the actual process is fairly simple. If you decide to register your OnlyFans business as an LLC, you can read our detailed step-by-step guide for more information or use Northwest Registered Agent to file for you. Also, we are active on Twitter if you want to send us a message or ask questions.
Updated: October 24, 2022