Making a full-time income as an author is a wonderful thing—except for that little detail where it also means that you may have some extra complications on your taxes. It’s worth dealing with those small headaches for the amazing financial and professional freedom that being a writer can provide, though. Especially when you do a little careful preparation to help make life easier when it’s time to file each spring!
Even if you’re relying on shoeboxes full of crumpled receipts and a gigantic cup of coffee when you do your taxes, there are ways to make the whole process simpler and ensure that you’re getting the most of your author income each year.
Just remember: a little preparation and organization during the year saves hours each April!
As a professional author, you need to report your writing income on your taxes, and the procedure for doing that is a little different from reporting money you’ve made from a day job. Plus, if you’ve made more than $400 from your writing this year, you’ll need to pay self-employment taxes. All of this requires some careful thought to make sure that you don’t have any unpleasant surprises after the April deadline.
There are a lot of moving parts involved with taxes when you’re self-employed, but taking care of your taxes as a professional writer doesn’t have to be scary. Here’s a few tips to help streamline things and make tax time less of a headache.
1. Set Aside Some Money
When you start making money from your writing, it’s tempting to immediately go blow it on a vacation to Aruba. Don’t let us stop you from celebrating—it’s awesome that you’re on your way to author success!—but make sure not to spend every penny.
Always set aside some cash for taxes. As a professional writer, you’re technically self-employed, so you don’t have an employer paying part of your Social Security and Medicare taxes on your new earnings. That means you’ll need a cash reserve to pay your state and federal taxes from.
In general, tax pros suggest setting aside about 30% of your earnings to cover taxes. Personally, I keep closer to a third, just in case. I’d rather have a little less free cash in my bank account now than have to scramble to cover a bigger-than-expected tax bill later.
Most banks let you set up sub-accounts for particular purposes, like saving up for holiday expenses or a new car; you can even label the accounts so you know what they’re for. It’s smart to set up a sub-account of your writing business bank account (you do have a separate one for your author income, right?) to use just for taxes. Every month, transfer 30% of your writing income to the Tax Account and you’ll have tax time covered.
2. Keep Track of Everything
And I mean everything. Receipts, Kindle sales reports, paperback sales reports, everything.
Did you travel to a writing convention? Keep all the receipts and log the mileage you spent driving (there’s really convenient apps for that, or you can just look it up on Google Maps).
Did you buy books on writing or take a publishing course? Keep the receipts.
If storing all those receipts is a problem, invest in a scanner and keep everything in folders on your computer. that you back up regularly. Technically, you only have to keep receipts for three years in case of an audit, but if you have everything scanned, labeled, and filed, you can keep them indefinitely in case the IRS ever has questions. With hard drives being so cheap these days, there’s no excuse for not keeping great records and holding onto them indefinitely.
It’s not just receipts, either—if you wrote articles for a magazine or website and got paid for them, you need to have that information written down. You should get a Form 1099 from the company that paid you sometime between December and February, prior to doing your taxes, but just in case, you need to keep your own records.
3. Pay Self-Employment Tax
The downside of making a full-time income as an author is that you need to pay self-employment tax on all that income. If you’ve made more than $400 as a writer in a given year, you have to pay both your portion of your Social Security and Medicare taxes and the portion that an employer would pay. That adds up, right now, to 15.3% on the first $118,500 of your self-employed income (12.4% for Social Security and 2.9% for Medicare).
Anything you earn over $118,500 is taxed 2.9% for Medicare.
Self-employment taxes are recorded on Schedule SE, which gets attached to your Schedule C when you file.
Self-employment tax is 15.3% of the first $118,500 of your self-employed income. If you’re making more than that, get yourself some professional tax help! Self-employment taxes are reported on a Schedule SE and attached to your Schedule C.
4. Stay on Top of Your Estimated Tax
Are you totally self-employed as a writer? Then you’ll need to pay quarterly estimated taxes to both the state and federal government. This means that once every three months (on April 15, June 15, September 15, and January 15), you need to send in a check along with form 1040-ES, paying approximately the taxes that would’ve been withheld if you worked for someone else.
But how much is that? In general, you should pay exactly what you owe every quarter. So once you know how much money you’ve made, you calculate that 15.3% and mail it in. But this can be tough to do on a deadline, so a lot of people just use last year’s income to estimate. Figure 15.3% of last year’s writing income, divide by 4, and mail that amount in every quarter.
As long as you make payments equal to the amount you would’ve owed last year, you won’t be penalized by the IRS if that’s not enough to cover this year’s taxes (say, because you had a great year and sold enough books to triple your income).
At tax time, you’ll write the total amount you paid in quarterly payments on the “Payments” line of your 1040 tax return (line 65). That’ll get you credit for what you already paid.
What if you’re just starting as a professional author and you have no idea how much you’ll make this year? Do your best to pull together your income figures each quarter and send in a check based on 15.3% of that amount (from your Kindle sales, print sales, etc.). It’ll get you close enough that you should be in good shape when April rolls around.
5. Get Your Forms Together
Schedule C is the most important form for you as a professional author. That’s the “Profit or Loss from Business” form you fill out if your writing business has been formed as either a sole proprietorship or a limited liability corporation (the two easiest choices for most writers).
On this form, you record your income and expenses. The various categories look pretty overwhelming, but because you kept great records thanks to Tip 2, everything you need to fill this form out should be at your fingertips. Just fill out all the fields that are relevant to you (most likely some combination of office expenses, travel, supplies, utilities, and legal and professional services) and you can follow the instructions to work out your total profit or loss.
W9s and 1099s
As a professional author, your books are probably the biggest part of your writing revenue stream. But you might also run courses, write articles, or do guest speaking. If you’re earning income those ways, you’ll want to make sure to document it.
Whenever you do work for a person or company and get paid, even if it’s just writing a short blog post or proofreading a manuscript, you should always fill out a W-9 form. This makes sure that the company you’re freelancing for has your tax information on file. If they pay you more than $600 in a year, the company is supposed to send you a 1099-MISC form, which lists exactly how much they’ve paid you.
Time Saving Tax Tip: You can fill out a W-9 form once each year using the IRS’s PDF W-9 form, save that file on your computer in a tax-related folder, and then send the same W-9 form to each company that pays you. This little tip will save you a bunch of time so you don’t have to keep filling out the same form over and over.
Even if a company doesn’t send you a 1099, you are obligated report what you earned on your taxes. You have been keeping track of all the payments you receive, right? If so, it’s pretty easy to add up all your writing income and to report it on Schedule C on your regular 1040 tax return.
The flip side of this is that if you pay a contractor more than $600 in a year, you need to send them a 1099! So if you did great this year and were able to bring on a publicist and a virtual assistant to help you, you’ll need to provide each of those people with a 1099.
And it’s not just people you work with regularly. Did you pay more than $600 for a custom cover design? 1099. Did you hire someone to build your author website and pay them more than $600? 1099.
Don’t worry, though—sending 1099s isn’t too awful. You can order the actual forms for free from the IRS at http://www.irs.gov/orderforms; click on Employer and Information Returns. Libraries often have free copies of various tax forms on hand in March and April, too. Once you have the form, just fill out the tax information of your contractor and send Copy A to the IRS and Copy B to the contractor. You can also use an inexpensive service like 1099Online or eFile4Biz to have the forms sent electronically.
Remember, you have to send the 1099 to your contractor no later than January 31 of the appropriate year (so, January 31, 2017, for the 2016 tax year, and so on).
6. Take Smart Deductions
So when you looked at that Schedule C up above, you saw all those “expenses” categories, right? That’s where your deductions go.
You can lower what you owe in taxes on your author income by claiming deductions. “Deductions” is another way of saying “allowed expenses.” They reduce the amount you’re taxed on: so if you made $40,000 as a writer, but spent $15,000 on allowed expenses related to your writing, you’d only be taxed on $25,000 of income. Basically, you can deduct all the money you spend on things that are completely, 100% relevant to actually getting your work as a writer done.
Many of us writers work from home, but that doesn’t guarantee that you can take a home office deduction on your taxes. There are a few criteria you have to meet for the IRS to allow you to use a home office tax deduction on your return.
Your home office has to be set aside only for work. That means you can’t work at the kitchen table and claim your kitchen as a home office deduction. There are two ways to calculate how much you can deduct for your home offices; the IRS has a worksheet comparing them so you can decide which is best for you.
If you write at a co-working space and pay a membership fee, you can deduct this expense on your taxes.
Writing Supplies and Equipment
This is a great place to take deductions! Lots of the things we writers need to work are deductible, like paper, pens, printer ink, and more. But did you know that you can also deduct the cost of that new laptop or your word processing software? Even Dropbox fees are potential deductions as long as you’re using the service only for business purposes.
Professional Fees, Memberships, Etc.
If you’ve joined a professional group like Independent Book Publishers of America that has annual dues, you can deduct on your taxes.
You can also deduct the cost of magazine subscriptions or books related to your writing and the cost of professional conferences you attend.
Travel and Meals
Do you travel to writer’s conferences, professional workshops, business seminars, or other business-related events? Do you drive or travel to meetings with PR professionals, publishers, agents, or other business contacts? As long as you keep track of how much your business travel expenses cost, you can deduct business travel expenses and save a lot on your taxes. Just make sure you keep mileage logs when driving, gas receipts, and receipts from meals or coffee with clients.All of this is deductible (although you only get to deduct 50% of a meal expense)!
All of these travel-related expenses are deductible (although you only get to deduct 50% of a meal expense)!
You can download our free author tax preparation checklist to make sure you don’t miss any important tax deductions when you file your taxes this year.
7. Get Some Help
It’s always smart to know when to ask for help, and taxes are the #1 place people tend to freak out and need some solid advice.
That’s why tax professionals exist, and why you should absolutely get help if you need it!
Software like TurboTax and H&R Block now has versions for self-employed people (often called Home & Business) or for small businesses. For $99 or less, you can have the software walk you through income and possible deductions. You can even sometimes buy “insurance” that will help if you happen to get audited (always a possibility).
If you have a more complicated situation or you’re just nervous, get local recommendations for a good tax preparer or accountant. It’s often not as expensive as you’d think to hire someone—usually a few hundred dollars (which is deductible as a business expense!)—and it’s worth the peace of mind that comes with knowing your taxes were done right.
With a little preparation and good record-keeping, doing your taxes as a professional author doesn’t have to be a headache!
Interested in earning even more as a professional author? Try these resources to jump-start your sales:
- Where money comes from and how to earn more
- Sell more books with Kindle Matchbook
- How to guarantee a profit
Word of Caution: I’m not a tax professional, just a writer who’s been through the freelance trenches for many years. All the information given here is for informational purposes only—don’t rely on it for tax, legal, or accounting advice. You should always hire your own tax, legal, or accounting advisor for the best possible advice for your unique situation.