Income tax returns are the most imaginative fiction being written today. - Herman Wouk
Happy April 17, and no, never mind the death part. But I thought I’d toss in an extra blog today on what I have learned about doing your taxes as an author, because Turbotax and I have always done our taxes together. This year was the first time I had author income beyond the “hobby” level, so off I went to prepare my Schedule C.
Things I learned:
(0) When you start receiving income, be diligent about paying some estimated taxes as you go along or face the consequences. I owed an extra $194 to the Feds and $32 to the state in penalties for not chipping in quarterly.
(1) If royalties are incidental to you, such as my husband’s royalties from a medical text book he helped edit, those go on Schedule E and are treated as simple miscellaneous income. This is NOT the case for those of us debuting as professional authors. We are now small businesses, which has both advantages and disadvantages. We file on Schedule C.
(2) What’s my income? On Schedule C, you will enter your gross writing income as reported to you by your agency on a 1099 form. (Check it for accuracy--I found an error on mine and had to get it re-issued.) If you have sold your own copies of your books at events (especially for self-published or small press authors), you’ll need to include that income as well. (There are sales tax implications that you need to look up for your state.) You have to keep track of these personal sales in some systematic way as you go along or you’ll be really confused come April.
(3) What do I have to pay taxes on? A. You have to pay payroll tax (for Social Security and Medicare) on your gross income. This is also called self-employment tax and it HURTS like crazy, because you are both the employer and the employee, so it amounts to about 13%. Ouch. This is what I call a disadvantage of being a small business. Then B. You have to pay income tax on your net income, which is your gross income minus legitimate business-related expenses.
(4) What do I get to subtract? Here’s where the advantages come in. First of all, you’ll deduct your agency fees which your agency took out of your advance check. If you paid any other professionals to help with your work--publicists, graphic artists, professional editors, photographers, etc. you can deduct these. Costs related to your website--domain name, professional photo, design fees, annual fees, etc. are deductible. Office expenses such as postage and office supplies are deductible. If you have a serious home office and can defend it, you can apportion your household utilities to that percentage of your home, but I don’t get into that myself. If you use your car for school visits, conferences, professional meetings, etc, you can report the actual miles travelled. I document my auto milage by printing a Google map showing the roundtrip route I drove, and I label it with the date and event. There will be generous allowance of 55.5 cents a mile in the 2012 tax code, so it’s worth keeping track. Any conference or promotional travel that you pay for--hotel, airfare, taxis, registration fees, etc. are deductible. I don’t deduct meals because I would have eaten them anyway and I don’t want any shenanigans or audit flags on my return. Office equipment you buy for your writing can reduce your taxable income as a depreciation expense over several years.
(5) If you have any foreign contracts and foreign sales, you really need to obtain Form 8802 from the IRS in advance of payment so those countries don’t withhold foreign income taxes. You don’t want pay tax twice, do you?!
The primary lesson here is KEEP GOOD RECORDS by tax year of EVERYTHING. And secondarily, plan on paying estimated taxes quarterly. Whether you do your own taxes or hire an accountant, you’ll need the same level of foresight and organization.
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Liz Coley writes young adult novels and science fiction/fantasy short stories for anthologies and magazines.
Her novel Pretty Girl-13 from HarperCollins Katherine Tegen Books will be debuting in 2013 in the US and will be sold internationally.
There are secrets you can't even tell yourself.