April 18, 2016 … You know what this deadline means for US-citizens? Yes, income tax return! They are due latest on this day. And it’s only a couple of weeks until then… Tax season is already in full swing. Don’t wait until the last minute.
Writers are presumed to be a professional if their writing made a profit in at least three out of the last five tax years, including the current year. Which means: Not more than two years of expenses that are higher than the author income.
Considerations of Profitability
There are a couple of other considerations that revenue agencies, such as the IRS, are listing, for example:
- Have you made a profit in similar activities in the past? If you have a successful book under your belt — or even a series of articles in paid publications, such as newspapers, magazines or online publications, which means you are a professional writer.
- Do you have the knowledge needed to carry on the activity as a successful business? How much do you know about running that business? Are you running it like a business, keeping records, keeping an eye to profitability? Did you take classes / seminars about the publishing business (e.g. marketing or tax etc.) no matter if online or offline?
- Have you created a professional book marketing and publicity plan? This might even be shown by including affiliate programs on your website / blog. If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Expenses You Can Deduct:
It’s important to find every deduction to which you are entitled. Always try to pay expenses from a separate account, setup only for your writing business, to make bookkeeping easier. Keep receipts and make copies of payments to contractors, freelancers and agency fees for book production, such as:
- Graphic Design
- Book Layout
- Printing costs
- eBook Formatting
- Advanced Copy reviews
- Book Trailer Design
Book Promotion Costs, for example:
- Advertisements, online and offline
- Giveaways (free book review copies, pens etc.)
- Flyers, brochures, business cards, bookmarks
- Book Fair expenses
- Costs for newsletters (AWeber, MailChimp etc.)
- Entry fees for writing contests
Other Costs, such as:
- Transportation costs (note the dates, distance, reason)
- Rental for book readings
- Office rental or mortgage, heating, electricity for your home office by square feet
- Phone / Internet / e-Reader costs
- Website / blog costs, such as hosting or development
- Computer / Copy Machine / Scanner / Router
- Office Supplies
- Meal expenses: in the USA full for public events you might host, and 50% if it is for a business purpose (interview, writers conference, meeting with book professionals, publishers, agents etc.)
- Transportation to meetings, events
- Research costs
- Copyright registration and ISBN fees
- your tax preparer or tax lawyer.
Keep all your expense slips sorted by date and neatly filed to make it easier to find them.
If you pay anyone of the above listed more than a couple of hundred dollars, such as editors for example, you would need to include the contract and a form (in the United States it is IRS Form 1099-MISC).
Note for each meal/entertainment expense the names, number of people participating and reason for meeting)
Publishers Weekly Gives this Advice:
“Income from an S corporation is not subject to Medicare tax,” says Robert Pesce, a partner in the media and entertainment group at Marcum LLP. “Only the salary an author is paid by the S corp is subject to the tax. So, an author with an S corporation who is earning $1 million and pays him- or herself $200,000 (a very reasonable salary at that earnings level) will only pay $6,000 (3%) in Medicare taxes, while an unincorporated author (sole proprietor) would pay approximately $30,000.”
However, if you are just starting out with less than a handful books, a sole proprietorship might be sufficient: Lawyer Helen Sedwick advices: “They are simpler to operate and subject to fewer arbitrary rules than the C corporations, S corporations, and LLC’s.”
Income Tax Rules for Non-US Authors
Ten Things Not to do While Completing Your Taxes
Disclaimer: These tips are meant to give general insight into tax information to writers, especially in the USA, and to give you an entry point so you can research further. While every effort was made to ensure the information in this article is accurate at the time it was written, we are not tax experts. Anyone filing taxes should consult a qualified tax preparer for updated tax laws and further specifics on how these rules might apply to your individual tax situation.
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