Please welcome first-time Visiting Professor Christina Mercer. An author and CPA, Christina gives us the skinny on managing the business side of your writing career.
Authoring books is amazingly fun and creative and never, EVER dull . . . However, along with all that imaginative wonderment comes business and money and taxes, oh my!
Let us keep in mind that when Authors truly mean business, they have propelled themselves from merely writing for “fun” to reaping well-earned monetary rewards. AND THAT IS A GOOD THING, RIGHT? Authors are not only wand-waving story weavers, but also real-world professionals running businesses that earn money. And, yes, along with that comes accounting and taxes. If that causes some of you Authors to squirm, just remind yourselves that it’s a sign of monetary success if your books are earning enough profits to generate said taxes. And you don’t have to figure everything out on your own. In my efforts to help fellow authors grasp the not-so-fun topic of accounting and taxes, I offer some helpful General Tips:
- If you haven’t done so already, get a dedicated bank account for your Author business. Why? Keeping personal and business monies separate makes recordkeeping much easier, and having a dedicated business account also helps legitimize a business in the eyes of the IRS, potential lenders, and business clientele. A separate credit card and/or online third-party payment processor (PayPal or Square) is also recommended.
- Get organized. Why? Because the IRS says that the “Burden of Proof” is on you. Make sure you are keeping all business bank statements, credit card statements, and transaction history from online third-party payment processors in a safe place. Attach/keep all pertinent supporting transaction slips and purchase receipts along with them, and file everything in a dedicated cabinet or file box. And don’t forget about emails as a resource. Setting up folders, such as income & receipts; banking; legal docs; etc., in your email account(s) can be a helpful way to retain pertinent docs.
- For those who keep an inventory of books for resale, keep a running tally of your inventory count along with purchasing costs and sales made each year. Why? Because you must account for them on your tax return. Make sure you are accounting for “freebies” given to others (or yourself) that are no longer part of your inventory, too. And be sure to follow the laws for “Sales Tax” collection and reporting implemented by the states where you conduct business. Keep in mind this common oversight: When you buy books at wholesale and then give any away as “freebies”, you may still be liable for what is known as “Use Tax” (typically the same rate as Sales Tax) on those books.
- Plan for taxes throughout the year. Why? Because Federal Estimated Tax Payments are required when a taxpayer expects to owe $1,000 or more in taxes with their tax filing. This includes both Income Tax and Self-Employment Tax. Self-Employment Tax is a completely separate tax that kicks in for self-employed individuals earning a net profit of $400 or more. Planning ahead for this can help you avoid a year-end panic in addition to pesky penalties.
- Keep track of any Independent Professionals you hire. Why? Because if you pay an Independent Professional (such as an editor, web designer, accountant, lawyer, etc.) $600 or more for services rendered during the year, and/or if you pay rent to keep an office space, and if those payees/professionals in business are not incorporated, then you are required to issue necessary year-end 1099 Forms.
- Get familiar with special deductions available. Why? Because they could save you in tax dollars, of course. For Sole Proprietors (which most authors are), the Home Office Deduction for a dedicated business space, the Standard Mileage Deduction for business driven miles, and the Self-Employed Health Insurance Deduction all have the potential to offer some nice tax deductions for you (rules and limitations apply).
With the tax filing deadline coming up soon, many are scrambling to get things in order. The best way to avoid a tax-time meltdown is to (of course) keep things organized throughout the year. For those super-business-types implementing accounting software or handy spreadsheets, you should be in great shape. But for those who have not gotten to that point and/or who would rather poke a pen in their eyes than deal with software or spreadsheets, here’s some Quick Tax Prep Tips to get you through:
- Breathe and treat yourself to a nice cup of sanity. Getting all stressed out is only going to make things worse. I’ll bet you can put together everything you need with just a little organized thought and action. However, if the deadline approaches and you are still trying to raise your head above an ocean of chaos, you can always file an extension. Just keep in mind that filing an extension for your tax return never means extending the time in which you must pay your taxes. Guesstimating your tax bill and paying that best estimate is required. And I even advise paying a bit more than you believe will be owed versus risking underpaying and being subject to interest and penalties.
- By now you will have received (or you should have) all pertinent 1099s showing royalty income you earned for the year. Keep those together to use for computing your business income. If you made no other independent sales or other income aside from royalties, then those will be the sum total of your business revenue. If you did earn other revenues from directly selling books or from other author-business activities, you will need to tally those up, as well. Look to your bank accounts and/or online third-party payment processors for deposits made that reflect income.
- As mentioned in the general tip list above, if you keep inventory you may have direct book sales to record as revenue. Keeping inventory will require a computation on your tax return that involves Cost of Goods Sold. In order to complete that correctly, you will need your beginning and ending year inventory book count numbers, the cost of any purchases for books made during the year (and the number of books added), and the number of books you actually sold or gave away during the year.
- Are you still breathing? In, out . . .
- If you have dedicated accounts with which you pay for general expenses, you’re in much better shape to tally up expense totals. If not, you’ll need to gather statements from accounts that include business transactions and get yourself a nice, big highlighter pen and start separating out those pertinent expenditures. Actual receipts (especially for items paid for with cash) will serve as additional resources for tallying expenses up.
- Also mentioned in the general tips is to utilize your email account(s) for additional docs. We often receive many business transaction receipts, important business correspondence, and other substantiating docs that serve to prove business activity and transactions.
- Prepare now for an easier tax time next year. At the very least, get a good filing system in place and some ledger paper to begin tallying things as they occur. Also (again) be very aware of the potential need for paying in Federal Estimate Taxes throughout the year, and if needed, make sure you pay those in a timely manner.
I hope this offers a little guidance on what can be confounding to many.
In fact, I’d love to know: What is one Accounting or Tax issue that continues to torture, er, perplex you?
For additional guidance on these topics and more, grab a copy of the new release: BEAN COUNTING FOR AUTHORS-Helping Writers & Creative Business Owners Grasp Accounting & Taxes.
Though the professions of author and accountant couldn’t be more different in their main functions, authors come closer to becoming mini-accountants than they realize. Why? Because once anyone becomes an official business owner, he/she crosses into the realm of accounting and taxation.
Oh, the horrors of it, right? But never fear!
Getting a handle on important basics is really not all that daunting. Allow this author and former CPA to help you get serious about your business by learning the major “must-knows” of Bean Counting for Authors and Creative Business Owners.
In this book, you’ll gain insight on how to:
- Determine if your endeavor is a Business or Hobby
- Choose and implement an Entity Structure for your Business
- Set up and Keep Books properly
- Set up and manage Sales and Use Tax when and where required
- Understand the different Business Taxes
- Recognize, track, and budget for Common Expenses
- Recognize, track, and budget for Complex Expenses
- Become clear about Employees versus Independent Contractors, and handle each accordingly
- Plan and save for Retirement
Counting each and every “Bean” earned may not be the idea of fun and adventure for most, but having lots of beans in the bank is a pretty great way for writers to keep on doing what they do love most-CREATING BOOKS! And understanding some important must-knows of financial matters is a big step toward making that happen.
Also by Christina Mercer:
Love is honey sweet, but it comes with a fatal sting . . .
Melaina Maris needs wings to fly the gap between loving Sam and her family’s ancient curse that forces carnal love and then kills the male lovers. She won’t let the same fate that killed her father befall another. She refuses to allow her goddess-created bloodline to continue. But there’s no easy way out, especially after the curse turns her into the Honey Queen—savior to honey bees— spinning her into a swarm of love, friendship, and death.
Once-upon-a-time, Christina Mercer worked as a CPA. Though she retired that formal hat, you can still find numbers buzzing around her head. She is also an award-winning author of young adult fantasy & paranormal romance. For much more about her and her writing visit: Web Site | Facebook | Twitter | Pinterest