how to manage your own writing business

There are three stages to the business:

1) not making any money

At this stage, you should keep track of your business expenses. For me, they included things like:

a) postage stamps, paper, mileage driving to post office
b) computer equipment, printer, desk, chair, books, bookshelves
c) fees for conferences, hotel, airfare

You can write off these expenses for a while before you have to show a profit, from your personal taxes. You can probably manage to survive without an accountant at this stage.

2) making a little money (under 20K a year)

This is the iffy territory in terms of getting an accountant. I did not have one at this stage, but it would have been easier if I had. You are still spending money on the same kinds of things in your business, but the reason an accountant can help is to alert you to new write offs that might not have occurred to you yet like cleaning fees for the carpet in your office, or a percentage of the rent/utilities for your office space, phone bills as a percentage of your business, even things like newspapers or magazine subscriptions, and what counts as a business trip and what doesn't at this particular moment according to the ever changing standards of the IRS.

This year, my accountant informed me that I can write off miles driven to a local book signing, but that I do not get a "per diem," even if I had to go out to lunch. I can only deduct the lunch if I go out with someone who I talk to about my business. However, if I go farther away and I stay over at a friend's house, I can still deduct the cost of a hotel in a bundled per diem.

(I hope I am not giving bad tax advice here. Please realize this is just my own best understanding, and that I consult with my tax adviser on such things as they do change constantly and one accountant may understand the rules differently than another.)

3) making enough to incorporate (more than 20K a year)

Once you hit this stage, you've got to have an accountant. You may need a tax lawyer or adviser, as well, if you are above 100k or if you are trying to make your family work on only your writing income, and so it is complicated by things like health care. My husband takes care of our regular financial needs, pays bills, and gets our health care. I think I would be frightened if I had to live on my writing income alone, even on years when I earn a good chunk of money, because it isn't regular. I won't speak to this demographic because I honestly don't know about it.

You should also incorporate, in my opinion, if you are a writer. Why? Because the tax laws are such that you can pay yourself a small salary and pay Social Security on that smaller portion, and then only pay taxes on the rest as dividends from your business. (Again, this is my small understanding of tax laws via my accountant. Please don't point the IRS to this site!)

Another reason to incorporate, in my opinion, is that it makes you think of your writing as a separate thing, not attached to you personally. I think it is useful for writers to think of writing as a business, and not as a hobby. This forces you to do so. It can also shield your other assets in case things go bad with the business (like your house or your 401K, for instance) or if you get sued. God forbid!

It's not that hard. Any accountant can tell you how to set up a corporation. (Mine is an S-corp, for those who care). I do not have to pay corporate taxes. I do have to pay a small yearly fee to remain a corporation. It is not a big deal. My accountant pays my quarterly taxes and he does my pay roll taxes, depending on which one I need to be doing.