Profitability is a key factor in how the Internal Revenue Service determines whether you can legitimately claim the costs of your writing as business expenses.
What kind of author are you?
- Make a profit in at least three of the last five tax years, including the current year.
- The time and effort put into writing indicates an intention to make a profit.
- Losses are due to circumstances beyond your control or occurred in the start-up phase of the business.
- Trying to improve income by changing the way you operate.
- Run your business professionally by keeping records and watching for profitability.
- Does not meet the for-profit qualification.
- Does not depend on income from the activity.
- Hobby income is reported as miscellaneous income on the personal tax return.
- Hobby income is not subject to self-employment taxes.
- Hobby expenses are no longer deductible.
- Keep thorough and businesslike records of your income and expenses.
- Keep copies of letters sent to and from agents or editors.
- Use a separate business checking account.
- Use a separate credit card for the business.
- Record business and personal use of assets in a logbook.
IRS Allowed Tax Deductions
- Ads – design, creation, and placement or media fees of print (newspaper or magazine), TV, or Internet advertising, having book listed at Ingram or Baker and Taylor’s wholesale catalogs
- Branding and logo design
- Business cards, flyers, brochures, mailers – design cost, printing and distribution costs
- Promotional items – bookmarks, book bags, tee shirts, pens, pads, etc.
- Signage and display costs – banners, posters
- Website design and development
- Business insurance – recommended
- Media Insurance – accusations of plagiarism, defamation lawsuits, breach of contract, work mistakes and oversights, missed deadlines, libel and slander, invasion of privacy (using a photo without permission)
- Commissions: Fees paid to agents
- Health insurance for self-employed
- Cannot be covered by an employer or with a spouse
- Meals and Entertainment Expense
- Deduct at 50% if the event has a clear business purpose, you have records of the discussion and you have receipts for anything over $75.
- Deduct 50% “if you provide meals, entertainment, or recreational facilities to the general public as a means of advertising or promoting goodwill in the community.”
- Deduct 100% if you rented space for a public book reading party to promote a newly released book.
- Podcast equipment
- Postage and delivery
- Stock photos
- Professional Development:
- Continuing education related to your business
- Publishing events
- Professional Dues:
- Online editing services
- Professional associations,
- Social media promotional groups
- Writers’ groups,
- Professional Services:
- Book designer, photographer, illustrator
- Data storage
- Editor, copyeditor
- Legal and accounting fees
- Reader for audio books
- Video producer for book trailer
- Website host, monthly/yearly hosting fees
- Reference Materials:
- Necessary books
- Subscriptions to writing related or research magazines and newspapers
- Self-employment tax
- If you are self-employed, you must pay all the social security and Medicare taxes yourself.
- For 2023, you will pay 15.3% on the net amount of income you arrive at on Schedule C.
- You can deduct half of the self-employment tax on Schedule 1, Part II.
- Software: programs, email accounts
- Mileage to meetings, research, and conferences (must keep a log of dates, destination, reason, mileage) – For 2023 the standard mileage rate is 65.5 cents/mile
- Cabs, subways, buses for meetings, research, and conferences
- Travel and expenses: for a professional event
Tax Forms You Might Receive
- 1099-MISC – Royalties from a publisher
- 1099-NEC – From someone you did work for as a nonemployee, paid $600 or more.
- Freelance writers who expect to earn more than $1,000 in taxes in a year are urged to pay their taxes in 4 installments.
- Installments are due in 2023: April 18, June 15, September 15, January 16, 2024
Sales Tax – Currently 6.5% (Kansas) – Sedgwick County 1.0% = Total 7.5%
- Must be paid for books you sell in person or through your website.
- 25 states are charging sales tax on digital downloads.
- Kansas does not.
- The tax is based on the selling price.
- If you sell a book at $12, but you bought it from your provider for $5, you pay sales tax on the entire $12.
- If you pay the POD provider sales tax based on a price of $4 a copy, then you resell the book for $12, you collect sales tax on the $8 markup for the state.
- If you buy books without paying sales tax and give the books away to reviewers, friends, contests, you are required to report these giveaways as if they were sales to you at the wholesale price and pay use tax on each book.
- If you pay the POD provider sales tax based on cost per copy and give the books away, you have already paid the sales tax.
- If you resell your books to customers at book fairs and through your website, you must pay sales tax to the state in which the transaction takes place, this includes conferences. You may charge the tax to your buyers.
- You are required to fill out state sales tax forms and pay sales tax to your state.
- If you are selling your books through Amazon or other online sites, they will collect and pay the sales tax. You do nothing.
- If you provide your resale certificate or your certificate number to CreateSpace or other POD provider, you won’t have to pay sales tax on books you buy with the intent to resell.
- You will report your sales tax (including sales to yourself for books given away) on sales-tax returns.
How to Register
- Visit ksrevenue.gov, sign in to the DKOR Customer Service Center.
- Complete the application and you will receive a confirmation number.
- After it is processed, you will receive a sales tax account number and a registration certificate.
When to File
- Annual tax due of $0-$400 = file annually on/before January 25th of following year.
- Annual tax due of $40.01-44,000 = file quarterly on/before the 25th of the month following the end of the calendar quarter (April 25, July 25, October 25, January 25).
Filing Your Taxes as A Writer
Sole Proprietor on Personal Tax Return
Schedule C on Personal Tax Return – Sole Proprietor
- File this way unless you have made many sales and have a high income.
- Report any revenue your business generated as well as the allowed deductible expenses.
- The net profit is the figure obtained after subtracting the expenses from the revenue.
- This figure gets reported on the Form 1040.
Schedule SE on Personal Tax Return
- The form that determines how much self-employment tax you owe.
- After calculating the figure, report it on Form 1040, Schedule 4 (line 57).
Other Business Types
Reasons to Consider
NOTE: Get advice from an accountant or attorney
- Your royalties or author business makes more than $10,000 per year.
- If you’re paying more than 21% in taxes as an individual or as a sole proprietorship.
- If your book or your business is in high-liability industries such as medical, dental, construction, restaurants, etc.
- If you have assets to protect against potential lawsuits – retirement accounts, real estate, investments.
- Can avoid costly probate when passing book rights and royalties down to children or other beneficiaries when you die.
- Litigation reasons today.
- Nonfiction – readers follow an author’s advice and sue if they experience negative results despite disclaimers in your book.
- Fiction – today anyone can get offended or have an issue with a book.
LLC – taxed as an S-Corp
S-Corp – you are an employee of the business and pay yourself a salary and are eligible for distributions.
- Salary portion is subject to the self-employment tax, distributions are not.
- Distributions are generally taxable.