Before I start writing: I am Lea Wait. I’m a writer, not an accountant.
But a few days ago Maine Crime Writers reader Ann Hough asked how I — and other Maine Crime Writers – set up the business side of being a writer. (MCWers and other authors — please comment!)
I know a few writers, generally very successful ones (think: always on the New York Times best seller list) who have incorporated themselves for tax and legal reasons.
But I suspect most of us file, as I do, on a Schedule C (“Profit or Loss From Business”). My husband and I actually file three Schedule Cs — one for my writing, one for his art, and one for our antique print business.)
On mine I list my occupation as “writer” (code 711510) and include income and expenses for both writing and speaking, since most of my speaking fees are related to my writing.
And before I go any further: the key to establishing yourself as an author with the IRS is having records of everything you declare, in any category, both income and expenses, in case the IRS questions whether your writing is a business or a hobby. It used to be understood that a business needed to make a profit on a fairly regular basis — some said every 3 years. My accountant has said that, with documentation, the IRS is more flexible about authors these days. But the key is always documentation. You have to be able to prove you tried seriously to make money from your writing.
OK. Income. That includes advances and royalties from book sales. (The percentage paid to your agent is listed under “commissions”.) Income includes on-line or bookstore sales from self-published books. It includes every dollar you earned from free-lancing, or writing short stories. It includes honorariums or payments from libraries or schools or conferences, or money from editing. I make copies of any checks I’ve earned during the year, no matter how small, so I can just add them up in January or February, when I’m doing my taxes. You didn’t have any income from writing this year? Be prepared to provide proofs that you actively tried to make money: letters (and rejection letters) from agents and editors. Query letters you submitted. Attendance at writing seminars or conferences.
Expenses? Again, having records is critical. I suspect authors do this differently, but I save receipts for every magazine and book I buy during the year. When I’m doing my taxes I divide them into “books I read to learn more about writing or publishing,” “books I read to keep abreast of the market,” “books I read for research,” and “other.” “Other” books are not deductible. The others are. I go through the same exercise with magazines, since they’re on a separate IRS line.
Dues to writing organizations are deductible, and they add up. This year I’m a member of Sisters in Crime, Mystery Writers of America, The Author’s Guild, Novelists, Inc., the Society of Children’s Book Writers and Illustrators, and the Maine Writers and Publishers Alliance.
Did you hire someone to design or maintain your website? Format your e-book? Design a cover? Edit your book? Publicize it? Do you have a post office box you use just for writing (so you don’t list your street address on your website)? Did you buy any equipment used just for writing (e.g. a tape recorder for interviews)? Writing software, e.g. Scrivener? Did you enter any writing contests or pay fees for critiques?
Your can also list marketing expenses (advertisements, printing postcards or other promotional materials), postage (to send those postcards to people on your mailing list or send books to potential reviewers,) the cost of writing classes or conferences, and office supplies (printer ink, paper, notebooks, envelopes, index cards) — again, supplies used just for your writing career. Giveaways – magnets, tee shirts, bookmarks, whatever, advertising your book(s) — yes. Deductible
Travel expenses can be dicey. I keep a record of every mile I drive related to writing … driving to events I’m attending or speaking at, visiting bookstores, going to historical associations or libraries or museums to do research, attending conferences, etc. If the trip involves an overnight stay, the hotel room is deductible. (The late night movie you paid for on your hotel bill isn’t.) Airline tickets, luggage fees, parking expenses, tolls, taxis — all are legitimate expenses when your trip is purely for business reasons. If you add on a day for vacation, you have to deduct that per cent of the expenses. Meals are also questionable. My choice is to list very few — the argument being that even if you’re at home you were going to eat anyway. I wouldn’t want to be called in by the IRS about a restaurant or bar bill. And don’t forget that if you’re lucky enough to be reimbursed for any of these expenses, you can’t declare them. Makes sense.
Although writers often buy clothes they only wear when they’re speaking or attending conferences (occasions that tend to require outfits a bit dressier than the sweat pants we may wear when we work at home), no — sorry — those clothes are not deductible.
Neither are taking your significant other with you on a trip (deduct 50% from expenses) or having your hair done for an awards banquet (you would wash it anyway, right?) or buying souvenirs. Unless, of course, the souvenir is a book on birds in the state where your next book is set, in which case it falls under “Books: research”.
Home offices are only deductible if the space is used exclusively for writing. I’d advise checking with your accountant on that one. If you do take a home office deduction, it has tax implications when you sell your home.
This all sounds more complicated than it really is. The key is recording every time you spend money on something related to running your business. To being an author.
It doesn’t have to be overwhelming. Every time I speak, say, at a library, I keep at least one or more emails from the library proving the event was scheduled, plus copies of any publicity about the appearance. After I return home I list the mileage I drove, any tolls or parking, any honorarium I might have received, a copy of the check, and any profits I might have made from book sales after my talk, clip it all together, and stick it in my “writing” file. Oh, yes: business mileage is deductible at whatever rate the IRS approves. For 2016 it’s $.54 a mile. (Good to know when deciding whether you want to drive 200 miles to speak at a small library.)
As a side — but important — note: If you sell your own books directly to customers you need a “resale” or sales tax number from any state in which you do business. Each state has its own rules. In some states you pay sales tax every month, in some it’s every quarter or six months or yearly. Not complicated, but sometimes the paperwork is a pain.
That’s the way I do it. Any comments, fellow Maine Crime Writers or other authors? Have I forgotten anything? April fifteenth is on the horizon …
Lea Wait writes the Shadows Antique Print Mystery series (latest: SHADOWS ON A MAINE CHRISTMAS) and the Mainely Needlepoint series (latest: THREAD AND GONE,) and historical novels for ages eight an up (latest: UNCERTAIN GLORY). Her LIVING AND WRITING ON THE COAST OF MAINE is about her life as a writer, living with her artist husband.
Thank you so much for all the terrific information. This will go into my “keep for reference” file
Very useful advice, Lea. Like you and Bob, we have three businesses in this household, and for that reason we use a trusted accountant to do our taxes. A few things I’ve learned from him may also help writers doing their own taxes. One has to do with meals. Instead of keeping track of what you spend on meals at a conference, which is only partially deductible anyway, you can take the per diem rate, which varies from city to city. It also, apparently makes a difference what time of day you leave home and return, so keep track of your flight times and how much earlier you have to set out to drive to the airport. Why go to all that trouble? Because for most cities the per diem rate is more than any of us would likely spend on our meals in a day. A couple of other things to add to the list of deductible expenses are the cost of renting a table at a craft fair or trade show and the rent on a safe deposit box if you are using it, as I do, to store contracts, reversion letters, and other writing-related documents. If you do take a home office deduction, don’t forget that if that room is, say, one of eight in your house, then you can also deduct one eighth of the cost of heating, lighting, and insuring and paying taxes on that house. As Lea did, I’ll add a disclaimer. I’m not an accountant, so please don’t just take my word for it on any of this. One thing I am certain of, for the state of Maine if nowhere else. If you only rarely sell your own books, say after one or two library panels a year or at one craft fair, you would fall under the “occasional sales” rule that also applies to a lawn or garage sale (as long as it isn’t a permanent one). In those situations, you do not have to collect Maine state sales tax or pay it. The same applies to anything you sell to an out-of-state buyer by mail order. You don’t need to charge them Maine state sales tax. If you have had sales on which you did have to collect state sales tax, however, you also have to include non-taxable income on your paperwork. More than you really wanted to know, right?
Thanks for those additions, Kathy! I agree with all of them. And … I do most of the paperwork for my taxes ahead of time — but then give the totals for all categories to my accountant, who checks to make sure I didn’t forget anything, or messed up in any other way. (That costs a lot less than carrying a carton of papers into your accountant’s office!)
The most important thing to remember: as an author — you are a business!
Thanks, Lea. Sharing… 🙂
I think I’ve got this tax thing in hand, especially now that I have this post to consult. Thank you for sharing your experience and system. It is incredibly helpful.
Thanks so much, Lea! That’s all really helpful. I’m the first to admit that I’m a words person not a numbers person. I kept all my expenses and receipts from my debut year of actually getting paid for a book and was in a deficit. That was great for my taxes, until I got the end and had to pay a self-employment tax, so I scuttled the whole thing and just did the regular deduction.
I plan to take your advice to heart and do it with more attention next year!
Good one! I would add that for people who want more routine, you can buy really cheap software programs tied to Schedule C. For record keeping some of them are dandy and one or two can be set to burp at you as a reminder every month. I have a box into which I pitch notes and receipts during the year so that I can locate any necessary paperwork in January.
Thanks, Carl! Anything that helps!