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Taxes For Writers

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?

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The Missed Tax Opportunity

I’ve got a beef. Now, it’s considered rude to discuss politics or religion in polite company, but y’all readers (who more likely than not are also writers) may share this beef, so I figure I might as well tell you.

It’s about everyone’s favorite thing to hate: Taxes.

First, let me be clear: I actually don’t mind paying taxes. I know, that sounds hard to believe, but it’s true. Taxes are good, in that stuff that the community at large needs gets paid for. I like having schools; I prefer it when my roads are well-maintained; I think it’s a good idea that our service men and women have sufficient armor.

But there is one tax that I think is just wrong-headed and counterproductive: self-employment taxes.

It’s a little tricky, so let me explain. When you work for someone else, some of your income is taken out to go to Social Security and Medicare and stuff like that.  Then, come tax time, you also pay any additional income taxes you may owe–this is set up in income brackets. Generally, it’s a percentage of your income. Mine is about 15% last I checked. At my last job, everyone in my general rate of pay wound up overpaying the IRS, resulting in a nice happy refund.

But I didn’t.

What was the difference? Self-employment taxes.

See, I had been honest on my taxes and reported that I’d earned a little bit of money from my side business as an editor. But I was only using one of those answer-the-questionnaire programs, so I never had any human to actually advise me. If I did, they would have explained this part for me.

Because, as a self-employed person, there is no one to take out those SS and Medicare-type taxes, the government puts that on for you come tax time. It’s aptly called the self-employment tax. It’s about 12-15%, depending on the year. And then, in addition, you pay income tax. And they stack, making my estimated taxes on my side business 30%. That’s a considerably more uncomfortable number, particularly because it’s a very small business.

On top of that, the IRS expects a check from self-employed folks 4x a year, so they are regularly getting the money needed to run the country. Rather than just paying taxes through an employer and once a year, a small business owner has to pay regularly. And if you don’t know that or miss a deadline, you get charged interest.

It can be quite surprising.

So last year, even though I made a very paltry sum in my side business, it threw off my total earnings and meant I had to pay Uncle Sam instead of getting a refund. This was disappointing, so I’ve been doing my homework this year to try to get ahead.

But like I said, I don’t mind paying taxes. My problem is: this kind of tax discourages people from starting their own businesses. And, considering a) how turbulent the economy has been and b) how we as employees can no longer trust that business loyalty between worker and owner goes both ways (ie. that you won’t be fired), encouraging more people to be self-employed–even just partially–is a great idea.

I had the privilege of hearing Dr. Muhammad Yunus, the founder of Grameen Bank, speak several years ago. Grameen Bank is all about providing small loans (microloans) to the poorest of the poor to help them start their own businesses. His work is literally transforming his home of Bangladesh, and his model has been adopted all over the world.

Unsurprisingly, Dr. Yunus is also a big fan of self-employment. It is safe to say that his talk and book inspired me to start my own business, too. But Grameen Bank is really struggling to work in the United States. Why? These kinds of taxes–even just the part about it being difficult to learn about what these taxes are–works against the very small entrepreneur. Sure, all the angel-funded entrepreneurs in Silicon Valley getting millions for an app that earns $0 fit right in, but the Etsy seller, writer/editor, or ice cream salesman struggles.

Personally, I think we need to lower that barrier to entry. We could encourage all those people who are on disability in rural areas to earn income, giving themselves a sense of purpose. It would encourage those who are currently hiding their non-9-to-5 income (you know who you are) to come out and be more honest. And it would give a boost to the overall economy, because, while self-employment isn’t for everyone, it can be as steady as the worker wants it to be. (I’ve found it often means I work more than when I’m working 9-to-5 only, because I’m more committed, more interested).

I think it’s just sort of a shame. Obviously it is important that the country’s bills be paid, but I think the current way self-employment tax is structured is a lost opportunity.

Am I the only one who feels this way?

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