It’s almost tax time–time for writers and editors to circle up and figure out what the heck they owe the government! Yay!
Seriously, I know it’s not the most fun part of being a creative individual, but it’s an obligation-to-society thing. I know a lot of beginning writers/editors/freelancers just try to dodge the taxman entirely, but this is a) not doing your social obligation and b) likely to bite you in the butt later on if you do strike it rich…they’ll find ya.
So it’s better to just be on top of it from the beginning, yes? Before we go any further, allow me to clarify that I am NOT a tax expert in any way, shape, or form–I’m just a regular Jane who has to pay these taxes, too. And I know I was completely overwhelmed (and did it wrong) when I started.
If you read this list and it applies to you, it would probably be a good idea to talk to a tax professional and/or to read a helpful DIY guide (I learned a lot from My So-Called Freelance Life).
- Self-Employed: If you are earning money as a writer or editor, you need to list yourself as “self-employed” and pay self-employment tax. You can even do this on years you didn’t bring in any money; this can give you a discount for some things (but don’t do it too often; it’ll increase the chances you’ll be audited).
- You must pay self-employment tax if you make more than $400 a year through your business. In other words, most people probably owe self-employment taxes.
- Write down every time you get paid for your work. How much, who from, and when. I have a spreadsheet that I use both to keep track of my work-in-progress and who has paid me what.
- Set aside 25-30% of the money you earn and tuck it away in a savings account. (Which figure you choose has to do with your income bracket…and whether you’d rather accidentally overpay–and get a rebate check–or underpay and pay in come April 15. Personally, the 30% figure gives me more peace of mind, so that’s what I do.)
- As a self-employed person, you have to pay estimated taxes quarterly, or risk being fined (the interest). This seems really unfair and scary if you’re used to a regular desk job–hey, why I gotta pay FOUR times?–but the reason is that your accounting department is paying the company taxes every month, so, since you’re being considered a business of one, you’re also expected to pay in regularly. To do so, you need the form 1040-ES, a Social Security number, and a check. (Here’s the info from the IRS.) You’ll pay in April 15, June 16, Sept. 15, and January 15.
- If you’ve planned ahead, this totally won’t matter: you’ll have those owed taxes tucked away in that savings account, earning interest on your behalf. It’s easy enough to just withdraw that amount owed four times a year.
- Discounts: The good news is, if you’re listed as self-employed and paying in what you owe, you can also get some tax breaks! For example:
- Home Office: if you work in a designated part of your home, you can take a tax write-off for your rent/mortgage cost. You’ll measure the square footage and that percentage of your house is for your work, so you’ll get a little break there. All you have to have are basic supplies: a desk, a computer, paper, whatever. But you really do have to have a office set up.
- Supplies: Bought a new pen for book signings? That’s a write-off! Paper and envelopes to mail in manuscripts? Keep the receipts and that’s a write-off! You can list the business expenses during a year, just like a big business would, and get a tax break. This can even include things such as a new outfit for cons (I met one person who dressed up as a steampunk character for books signings. Yup, her costume was a write-off!).
- Car Miles: This probably has less effect for the most home-bound of us, but if you drive around for your business (and keep very good records) you can count the miles driven and gas paid as business expenses, further lowering your tax burden! For example, you may drive a lot for meetings with book clubs as you promote your book: track all those miles and you’ll have a discount you can take!
- Gifts: There are rules about gifts, but basically, if your business gifts a business contact a gift, you can write off the entire cost! Those chocolates at Christmas that you sent to your editor are now helping you!
Paying taxes as a writer or editor is a little more complicated than your typical desk-job paperwork, but it doesn’t have to be a bad thing! While writing those quarterly checks can sometimes seem painful, I’ve kept good records of my business work in general and I typically get a bigger rebate at the end of the year than I expected…which is money I can safely put right back into my business.
All it takes to be a law-abiding taxpaying writer is a bit of record-keeping and awareness. (Besides, everyone who pays you more than $600 is also required to put that on their taxes…so they’re reporting your earnings one way or another!) The best tax-defense is a good offense: perhaps it’s time you made an appointment with an accountant?