Wednesday, August 28, 2013

Writing and Taxes

by Elizabeth S. Craig, @elizabethscraig
The business side of writing is my least favorite part.  I struggle to keep up.  And there’s sort of a residual guilt that I’m not doing all I can do to keep my accounts organized.  But I’m trying.
New as of 2013 is an accountant.  I tried…I did try…to do my taxes last February. I’ve done my own taxes for the last ten years.  This time, however, they boggled my mind about halfway through and I also felt a rising panic that I was doing something wrong.  I found a CPA right away.
One of the problems is that my income—never very much, but always nice to have and increasingly relied upon—comes from many different sources.  I’ve now got income coming from two traditional publishers, Amazon, Smashwords, Nook, ACX, and CreateSpace.  My accountant recently asked me financial planning questions.  I ended up giving several apologetic shrugs.  I’m sure this makes her want to drink heavily.
“So you’re getting a check this fall?  But you don’t know what that check will be for?”  She smiles patiently at me.
“No idea.  It’s for royalties from Penguin.”
“For sales.  But you don’t know your sales.”
“That’s right.  It’s just sort of a surprise.”  I’m blushing now.  It makes it look as if I’m not paying attention. But these are numbers I’m not privy to—primarily bookstore numbers. This is, admittedly, one of the things that drives writers a little nuts when it comes to traditional publishing.  I add, “But I also have self-published books and I’m paid 60 days in arrears for those.  I should be able to give you an idea of the money coming in 60 days from now for my self-pubbed books, if that helps.” Financial planning, when you're a writer, means a lot of guesswork and piecing together.
I did get some tips from the CPA that I’ve been fairly good about following (and then some that are good tips that I haven’t gotten around to yet).
Open a business checking account.  If you can, find a free one—probably with a small bank or a credit union.  Have your publishing income direct deposited into that account.  Write checks for publishing-related expenses from that account, too—it just helps to keep everything straight.
Keep a small notebook in your car to record gas expenses for writing-related trips. This is not only for promo…this could be gas spent driving to the post office to mail off giveaway prizes to readers or gas used driving to the bank to deposit a random check.
For US writers (since I have no idea how this applies to international writers)—if you know you’ll likely be paying a fair amount of taxes to the federal government in April (because this stuff isn’t taken out of our checks, y’all), we should pay the government estimated, taxes along the way.  To avoid penalties, for sure, but also to keep the tax bill from putting us in total shock when we get it in April. 
Contributing to a 401K (self-employed people can be eligible) or an Individual Retirement Account can help to reduce the amount of taxes we pay.
Obviously, the necessity of paying taxes means that we shouldn’t spend all of the money from the checks that come in. As difficult as this is. :)
If your income is higher during the year than you’d previously estimated, it might be a good idea to check back in with your accountant and make some plans. 
Keep receipts.  Keep your office supply receipts, your receipts for computer-related purchases, your gas receipts, your conference receipts.  Remember to keep receipts of payments for services, too—your agent’s commissions, your cover designer’s bill, your formatter’s invoice, etc.
And the disclaimer…clearly, I’m not a tax adviser (ha!) If you need tax advice…I do recommend you find a professional.  It will keep you from staying up at night worrying about this stuff.
Until you find your professional, here are some interesting articles on taxes and writing income to get a more thorough overview.
Taxes 101 for Authors—by Susan Spann

How do you keep track of your writing income? Got any other tips?  
Image: MorgueFile: ModernCog