One of the most challenging aspects of leaving academe and becoming a “rogue scientist” is figuring out how to deal with your finances. An independent researcher who is clever and entrepreneurial might have revenue coming in from freelance writing, consulting, grants, as well as work not traditionally associated with scientific research. All of which makes life — and, at least for U.S. citizens, taxes — very complicated. One particularly effective way to simplify your financial life is to incorporate yourself by starting a “single-owner S Corp limited liability company.”
What does all of that mean?
Single owner means you have no employees or shareholders. Limited liability protects your personal assets from lawsuits. Liability protection is the dominant reason most people incorporate, but for a rogue ecologist like me, that is not particularly useful. Finally, an S Corp means your company is a pass-through organization, the business itself is not taxed, but rather the tax burden is passed on to the shareholders (you). There are quite a few significant financial benefits to operating as an S Corp, rather than as a freelancer, but — and this is important — I am not an accountant. You should talk to a financial adviser to find out if you can realize significant financial benefits from incorporating.
There are, however, several nonfinancial benefits to operating as an S Corp, especially for rogue scientists who function more like consultants than pure freelancers.
An organizational identity can make you more competitive for research grants.
Lots of private companies, NGOs, and even government agencies provide grants to entities other than academic institutions, but are leery about disbursing money directly to an individual. Even if, functionally, the only difference between giving a grant directly to you versus your company is which bank account it goes into, companies have higher standards of accountability and make you look like less of a risk. It’s much easier for grant agencies to issue money to a corporate entity than to an individual. Incorporating also makes you eligible for grants awarded to small businesses, because that’s exactly what you are.
An Employer Identification Number can reduce the risk of identity theft.
When you incorporate, you get an EIN. This is your company’s equivalent of a Social Security number. As a freelancer, you have to file W-9s with each one of your clients. For me — during the peak of my freelance phase, before I incorporated — that meant I was providing my Social Security number to a dozen or more new people every month. Practically, I had no idea if those companies were handling my personal information in a secure way, nor could I vet every person with whom I interacted. I had to trust that each client was doing right by their contractors’ personal information (and still are, as they have to retain those records). By billing through my company, however, I could protect my Social Security number. A compromised EIN has far less potential to damage your future, your personal finances, and your credit score. It is much harder for someone to commit identity fraud with a corporate identity.
Incorporating buffers you against the dreaded employment gap.
As an early-career scientist, if you’re between postdocs, your CV will appear to reflect a period of unemployment — even if you’re working furiously as a freelancer. Like it or not, the academic job market (and every other job market) is as much about perception as substance. The longer you go without an academic or academic-adjacent job on your CV, the less likely your application will make it past the HR round and onto the desk of someone who can accurately assess your accomplishments. Being a corporation can lend you legitimacy, and make clear that you were working as (if nothing else) a consultant in your specific specialty.
Incorporating opens doors.
Again, like it or not, perception matters, especially when trying to land informational interviews, meet with deans, and connect with the people you need to help further your career. From empirical observation — both of my own experiences and those of my peers who have attempted the same route —I can say with assurance: There are going to be some critical contacts who will ignore you as a freelancer, but will be happy to open their doors and take you out to drinks when you’re the CEO of your own company. Functionally, the only difference is on paper (and in how you manage your finances), but perception matters.
If you happen to live in a state where incorporation is relatively simple and inexpensive, these reasons alone may be enough for you. If so, or if you’re just curious, talk to a financial specialist who can help you figure out whether or not there are other benefits. There are, of course, downsides as well.
- You have to be very careful about your finances. You have to invest significant time into accounting. The first time you file taxes, you’re going to want to set aside plenty of time to work through and understand all of the federal and state requirements. Don’t do it alone — meet with a good accountant first. Also, corporate income taxes are due in March, not April, so don’t let that sneak up on you.
- Some states are more expensive than others. So make sure that you know what you’re getting into. I made the mistake of incorporating in California, which has relatively steep state taxes for corporations, rather than waiting eight months for our move to Virginia, which is much kinder to small businesses. There’s a reason 60 percent of Fortune 500 companies are incorporated in Delaware, and it’s not just because of Rehoboth Beach’s sunny, family-friendly boardwalk.
As always, this is a strategy that has worked for me, and it’s one I think will work for many rogue scientists, but mine is not the only path through the wilderness, and may not always be the best for you. It is, however, in the best interest of any scientist planning to go rogue by choice or circumstance to investigate whether incorporating could work for you. At the very least, you get business cards with cool names like Blackbeard Biologic.