The IRS usually does not inspire warm and fuzzy thoughts. But if you take the time to learn how to capitalize on the tax deductions available to authors-as small business professionals-you might begin to see the IRS in a different light.
I raided the website of Carol Topp, CPA-an accountant who became an author when she wrote a book about business and tax tips for authors-and I picked out my favorite posts that shed light on how authors can build a positive relationship with the IRS.
Danielle’s Favorite Posts from “Taxes for Authors”
- “What income do authors make from publishing?” -5,000 authors were surveyed and asked about how much money they earn from their publications. It turns out that self-published authors earned the least, traditionally published authors earned more than the self-published authors, hybrid author (those who are both self-published and traditionally published) earn the most, but none of the authors earn enough to make it a primary source of income. Read the post to find out just how much they really make.
- “Are self publishing expenses tax deductible?“-Authors who choose to self-publish may end up hiring a ghostwriter, editor, graphic designer, buying their own ISBN, hiring publicity or marketing companies, designing websites or even hiring a self-publishing company to form their publishing success team. Read this post to find out which of these expenses are tax deductible and how to claim your deductions. As an encore, I also recommend that you read “5 Secrets to Tax Deductions,” “More Tax Deductions for Authors” and “Even more tax deductions for writers.” If you join her mailing list while you are on her website, you can download a free e-book about tax deductions for writers.
- “Q-Start up expenses I never claimed on my tax return“-The previous post highlights which expenses are deductible, but this post is for the authors who accumulated expenses in previous years and never claimed the deductions they are entitled to. If you fall into this category, don’t worry. Carol tells you which steps to take to take advantage of your deductions.
- “Tax Return Tips Every Writer Should Know About“-This post has only 83 words, but each word is powerful. Learn whether or not you should file a tax return and whether you can claim your book expenses alongside your business expenses. I also recommend that you read “Common Tax Mistakes Made by Writers,“
- “IRS simplifies home office deduction”-If you have a specific place in your house that is used exclusively for your business (e.g. a space only used to store your books) then you may qualify for a home office deduction. Read this post to learn more about how to qualify for the home office deduction and the new simplified method for calculating the value of that deduction. Learn more about this particular deduction through these other posts: “The Writers Home Office Deduction,” and “How picky is the home office deduction.”
- “Banking Mistakes Writers Make“-Did you know that when you publish a book, you should open up a separate checking account that is only used for your book expenses? Do you know what legal actions you will need to take before you open up that business account? How will you get the money to open the account? Once you read this post you will know.
- “What’s the difference between a sole proprietorship and an LLC?“– This is not my first post that talks about an LLC, but the previous post was from a lawyer’s perspective. This post is from an accountant’s perspective. When you put the two perspectives together you get a more complete answer. I also like that she directs you to two additional resources that offer a more in-depth explanation. Here are a few other LLC related posts on her blog: “LLC: Yes or No?,” “Should You Incorporate Your Business,” and “Business Tip #16 for Writers: Sole Proprietorship.”
- “Business Tip #7 for Writers: Recording Income/Expenses“-Now that we have established that your expenses can be deducted on your taxes, I’ve decided to include this post because it highlights the records you should keep to make sure you have documentation to support all of the deductions you deserve. She recommends a basic folder system. If you are comfortable with using computers, I recommend using an online software like Wave Accounting. It’s an accountant approved software that is free and can automatically import data from your PayPal and/or business banking account into their software using bank quality Internet security. If you need help, you can always sign up for a free consultation, find a local accountant in their nationwide database of accountants who are familiar with Wave, or pay a low fee for phone support. They even have a tool that allows you to record images of your receipts and connect them to your records. Learn more about record keeping in her other post: “Bare Minimum Record Keeping.”
- “Should an author release his rights to a charity?”-Each author that I work with writes a book in response to a problem they want to solve. Since every charity is designed to address a social problem, it is not unusual for authors to consider using their book to support a charity. In this post, Carol outlines the best and worst ways to reach this goal. As a bonus, a lawyer who specializes in copyright law even commented on the topic with “unofficial” legal insight.
- “Business Tip #12 for Writers: Sales Tax”-When you sell books, you are responsible for paying the sales tax. Carol gives you a few tips on how to collect sales tax dollars at book events. I also recommend that you learn about the tax responsibilities for crowdfunded dollars in her posts “Using crowd funding to raise money for your book“ and “Are gifts from Kickstarter taxable income or a donation?“
This is not an exhaustive list of everything you need to know about taxes, but this list does highlight several topics that many authors tend to overlook. If you would like to have the convenience of a paperback book or an e-book to reference these tips and more, you can check out Carol’s book “Business Tips and Taxes for Writers.” I do not receive any money if you purchase the book, but you may end up saving money in the long run if you keep these tips in mind.
Question: Are you surprised by any of the tax deductions or responsibilities mentioned in the posts above?
Image by: Joshua Doubek (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons