Posted On February 12, 2018 by Print This Post

RWA Treasurer Donna MacMeans Talks About Taxes

The ground hog says winter will be hanging around for awhile, but April 15 is approaching with the inevitability of death…and taxes. Who better to to address this issue than our very own tax expert, DONNA MACMEANS!

Hi All –

 

Given the time of year and my credentials as a CPA, I thought a posting about taxes might be in order.  I know this side of the business is not fun, but unfortunately, it is necessary.  The new Tax Reform act has kicked up all sorts of questions; so let’s see if we can make your 2017 tax filing a little easier.

 

  1. What kind of entity do I need to be as a writer? I’ve heard that I’ll get a tax deduction if I incorporate.  Is this true?

 

  1. Thanks to some last minute negotiations, pass-through entities, as well as corporations, can receive a business income tax deduction for their 2018 taxes—so no need to rush out and change anything just now. But for purposes of understanding, let’s quickly review your entity choices.

 

A pass-through entity is one that allows its income to be taxed on an individual’s tax return, rather than a corporate return.  Examples of a pass-through entities include: Schedule C taxpayers, partnerships, and subchapter S corporations. If you’re just starting out, start as a Schedule C sole-proprietor.  That means writing is your business and yours alone.  You don’t need to do anything special, just put your writing income and expenses on your Schedule C, carry the net income over to the first page of the Form 1040 (line 12) and, of course, pay your taxes.  It’s the cheapest way to report your business income – and you’ll qualify for the Business Income Deduction if you show income.

 

It’s worth mentioning as well that if you have a loss, as long as you report it on the Schedule C, you should be able to deduct the loss against wages income or other income.  Writing is a business.  Make sure you treat it as one.

 

  1. Every year I get a 1099-MISC from my agent and it shows more money than I received. What am I supposed to do with this thing?

 

  1. Report it (grin). If you received more than $10 worth of royalties, the publisher/distributor must send you a 1099-Misc with the amount of royalties paid.  Often, the publisher pays the agent and the agent sends the money on to you less the 15% commission.  You should report the royalties at 100% as per the 1099 Misc, then deduct the 15% agent fee on the line for Commissions on the Schedule C.  That way you are reporting the amount of money you actually received (100% less 15%).  If you didn’t use an agent, or if you’re independently publishing, just report the amount of royalties shown on the 1099 as income.  If possible (due to good record keeping) check that amount to the amount your checkbook says you received because mistakes have been known to happen.

 

  1. I paid my cover designer more than $600. What do I do now?

 

  1. Whenever you pay an individual more than $600 in the course of trade or business, you should send them a 1099MISC. This is an informational return to let the IRS how much money the other person should report as income. EXCEPT – If you paid via paypal and if your paypal is registered as a business account, then you can skip the 1099MISC.  Paypal is supposed to send out a 1099-K instead.  The only way Paypal knows you are a business is if you are registered as one.  If you’re set up as an individual, you need to send out the 1099 MISC.

 

  1. Can I deduct the books I give away as charitable contributions?

 

  1. Should a simple question has a complex answer (grin). First, you can only deduct items that you have paid for.  If you received author copies free from your publisher, you cannot turn donate them, then claim full retail value.  You can only deduct those things that you have paid for.  Second, a charitable deduction is only appropriate for items given to charities.  If you gave your books to Goodwill or Literacy – that would work.  If you gave your book to a friend or a fan that couldn’t afford it otherwise, that’s not charity, that’s a gift.  If the individual agrees to post a review or talk the book up, that would qualify as a promotional expense.  Be sure to classify your expense accordingly.

 

  1. What can I deduct as research expense?

 

  1. It’s truly amazing the things we authors need to research, isn’t it? From a trip to a foreign land to research for setting purposes, to museum tickets to view an exhibit on costumes or firearms, to recent romance novels to keep abreast of trends or publishing house preferences.  Of course, there’s always “how-to” books on how to write, how to publish, and how to sell to consider.  The “how-to” books would definitely qualify as research.  The rest probably qualifies but I would suggest you maintain a journal to record what you purchased for research purposes and what you learned or hoped to learn from the expenditure. Remember, if it ever comes down to an audit, having the written journal will go a long way in your favor.

 

***

Hope that helps with some of your tax issues.  What tax questions do you have related to the business of writing?

Kris Tualla joins us Wednesday with her debut post for RU. And Friday, Anna Sugden is back for a visit!

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Bio:

Award winning author Donna MacMeans made a wrong turn 40 years ago when she majored in Accounting. While she’s still a licensed CPA in Ohio with an active tax practice, she is also a hybrid writer of seductively witty historical and paranormal romance. She’s combined these two diverse talents as the current RWA Treasurer.

Check out her re-release of her Golden Heart winning manuscript, THE EDUCATION OF MRS. BRIMLEY.  Sign up for her newsletter at www.DonnaMacMeans.com to learn of new releases.

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17 Responses to “RWA Treasurer Donna MacMeans Talks About Taxes”

  1. Donna – It’s always good to have you around, but it’s especially reassuring at tax time. No matter how many years I’ve done the paperwork, tax time still frazzles my nerves. Thanks so much for sharing your expertise with us!

    Posted by Becke Martin Davis | February 12, 2018, 12:08 am
  2. This topic has been on my mind a lot lately. My question is, do I have to wait for the book to be published to start claiming deductions or can I start at the time I signed my contract?

    It’s my first book and I have no clue what I’m doing!

    Posted by Nicole | February 12, 2018, 8:41 am
  3. Great post! But what I am in a tizzy over is this: 2017 was my first year writing where I made money. I have deductions, income, home office, etc, so is TurboTax adequate? Should I use H&R Block, or is this the time to find a tax guy. How involved does this need to be (as in how much should I pay to make sure I get the best deal possible)?

    Thanks, Debbie 🙂

    Posted by Debbie Curtis | February 12, 2018, 9:52 am
    • Congratulations on making money at writing! That’s a huge accomplishment!

      Posted by Becke Martin Davis | February 12, 2018, 10:45 am
    • Congratulations Debbie! I’d do it myself with Turbotax Home & Business, but that’s me. You will need that home and business part to get the Schedule C you’ll need for your writing, but going to H&R Block or finding tax guy is probably easier. Here’s the thing – Publishing doesn’t come with a guarantee of an income every year (wish it did!) You may find years in a series when you don’t make anything. Sometimes H&R Block, or a tax guy, might argue your writing is a hobby. In that case you can only deduct expenses up to your writing income…not good. That’s why I’d do it myself. As for expense, that I can’t answer. It depends on where you live, what other things are happening on your tax return, the condition and nature of your bookkeeping. I would suggest first trying to do it yourself – that will run about $80 plus time. H&R block and the tax professional will be more expensive, but you won’t be controlling the product, or maybe realizing what sort of expenses you could be deducting.

      Posted by Donna MacMeans | February 12, 2018, 11:15 am
  4. Donna – Thanks so much for hanging out with us today.

    I mentioned April 15 in your intro – since then I’ve discovered this year’s deadline is actually April 17. 🙂

    Posted by Becke Martin Davis | February 12, 2018, 10:51 pm
  5. Great article and great tools too thanks for sharing this with details

    Posted by Part time CFO services UAE | February 21, 2018, 11:18 pm

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