If you’re serious about affiliate marketing or planning on getting serious with it, I believe you should treat it like a business. I’m a professional web developer where I’ve been running my own business for five years now. There are quite a lot of advantages of having your own business which can be extremely beneficial in the world of affiliate marketing.
Treating your affiliate marketing ventures as a business would require you to acquire a business name and to form a business entity. As for me, I created a S-Corp (Inc) a few years ago solely to take advantages of the tax benefits found there. For example, you would no longer be dinged for self-employment tax. Those of you who pay self-employment tax should understand how that chips at your paycheck/earnings.
Becoming a business lets you take advantages of expenses and deductions. These would include your office, utilities, meals, travel, etc. These deductions help with you with your earnings. Granted, it takes away from your profits, but since you’ll be buying new laptops, phones, etc., you’ll be spending it on fun useful things vs. giving it to the government.
I would not recommend going S-Corp unless you’re quite serious and after you’ve made some money to justify the hasseles. Hassels include payroll (yes, you need to pay yourself), quarterly dividend payments and quarterly taxes. To get your feet wet, it may make the most sense to start a LLC. You’ll still get nailed with self-employment tax, but at least you’ll get the business wheels rolling. You can change your status to S-Corp any time.
I also like the ability to provide a EIN (Employer Identification Number) vs. my SSN (Social Security Number) when applying to affiliate networks. The threat of identity theft is always out there, and the SSN is major part of the identity foundation. I believe you can still have a EIN as a LLC, but I could be wrong. EIN are associated with Incs., generally.
Besides the legality/tax aspects, it’s important to create a business plan, goals and budgets for your affiliate business. As you can see discussions like this can easily separate the hobby-affiliate vs. the professional-affiliate. In my case, I was able to include affiliate marketing as a segement of existing web development business. Basically, a department. I have set goals laid out for various areas of my business and the affiliate marketing division is no exception.
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