Authors and Taxes

So you published your first book (or maybe more than one) last year! YAY! That’a amazing! Only now you’re getting unfamiliar things in the mail, either from your publisher or Amazon or what-have you. They are 1099’s.

Holy Shit.

You have to do taxes.

As an AUTHOR.

*heavy breathing*

Ok, let be begin by saying that I’m not a CPA or a tax professional at all. But I have been doing this a very long time and I can give you some tips to help you navigate this new part of your career.

Firstly, you can absolutely hire a CPA. For real. It’s smart, especially if you made buku bucks. I haven’t needed to yet. I always do my own taxes. Now, I buy the H&R Block box (the big one, that includes forms for business income because, guess what? 1099’s. You’re now self employed, woohoo) and I’ve never had any issues with it. I find it easy to use and it comes with audit protection, so cool.

What you need to have either way:

All your 1099’s (and W2s and any other income records you normally need)
All your expenses, listed by category (I will go over what you can and can’t claim as an expense below)
Receipts (keep receipts for EVERYTHING)
Booze (optional)

 

If you have a CPA or tax pro, you can just hand everything over and be done. Lucky you. CPA’s can also be expensive. If you’re using a DIY program, it will walk you through the process.

As an author, you are (unless you own a company or LLC) what’s called an Individual or Sole Proprietor. If you make less than about $35,000 this works great for you. Once you start making upwards of around $40,000 you will WANT to set up an LLC and ask the feds to treat it like an S corp. for tax purposes. Reason being, when your income fluctuates, you can end up in a higher tax bracket than someone with the same income, only steady. It’s complicated, but trust me, get a CPA at that point.

Also, bravo. That’s an amazing income for an author. Go get a cookie. You deserve it.

Below that 40K line? Great! Now, if you live in a state like Alaska, Florida, Nevada, Texas or Washington, then congrats. They don’t collect state income tax, so if you DON’T live there and want to save some bank, you might consider relocating. Though, none of that saves you from federal tax.

Note: Unless you have a physical store or sell physical items yourself (direct print sales), you don’t have to collect sales tax or worry about any of that. If you DO, you should see a CPA or tax pro for sure, because that gets into inventory and FIFO stuff and it’s kind of a mess unless you have really excellent books, so my advice is simply, avoid direct sales if you can.

First you need to ask yourself, Is your writing a business, or a hobby? That will be the first question you have to answer, because hobby income is treated very differently than business income. The main difference between these two, tax-wise, is that a hobby cannot generate a loss. So, if you spend a large sum of money on office equipment, rent, travel, and research for your hobby, your losses will not be carried over to a future year to offset profit for when you get that big advance. If, however, you have a business, losses can be generated.You can deduct expenses in either scenario; keep in mind though that if writing is your hobby, deductions cannot exceed income earned.

For example, my first two years, my business took a loss, meaning I spent more than I made and thus, I was able to claim that loss against the taxes I owed from my other income, as well as carry over some expenses into the next years. There are regulations about how many years, consecutively, your business can deduct that loss, but it was a nice cushion for me starting off. Ultimately, if it is a business, your tax goal is to negate as much income as possible with deductions.

The best way to keep track of your expenses is with either a program like Quickbooks, or even just a good Excel sheet (which is what I use). Record everything, whether you think you can deduct the expense or not. I mean EVERYTHING. Every notepad, light bulb, and virus software renewal.

What you have to claim:

Any money you made (that’s those 1099’s).

What you can deduct:

Travel expenses for work (ie traveling to signings, conventions, etc) such as flight costs, gas, booth fees, and hotel expenses.
Child care.
A percentage of your property taxes (if you have a dedicated home office only! And be careful with this one, it’s a big red flag to the IRS so only claim it if your office is used for work ONLY. If you work in the kitchen, for example,you can NOT claim the home office.)
Materials used in the creation of your books such as computers, printer ink, paper, pens etc. (but you better have receipts!)
Postage expenses (For example, mailing contracts to your publisher)
Marketing expenses (buying ads, printing banners, bookmarks, etc and any cost associated with mailing marketing materials to fans or bloggers)
Books given away for review (print only)
A percentage of your phone & internet bills monthly.
Any research materials you purchase
Office furniture (if you can claim the dedicated office ONLY)
Membership fees to professional organizations like RWA or SCBWI
Domain and hosting fees for your websites
Computer accessories/software

 

Things you can not deduct:

Clothing/shoes
Food (Business lunch? Nope, still can’t claim it, because, you’d have to eat anyway, you know? Though you can claim mileage to and from…)
Booze (sorry!)
Therapy (I’m trying to get this one changed, because FOR REAL)

 

Here’s hoping this helps you out, or at least gives you a place to start. I know it can sound complected, but it’s really not so bad. Happy Taxing!