This is the second post in a series by author Kayla Curry. Last week, she talked about marketing strategies for authors. This week, she’s here to delve into the tricky world of accounting. Enjoy!
Part Two: Accounting
Okay, so you’ve got your book out and you’re starting to see your book is actually selling! (You know, since you’ve taken in the marketing advice from last week.) Now, how do you keep track of all the money you have coming in? How do you keep track of your costs? What does this mean when tax season rolls around?
Keep in mind, I’m still figuring some of this out for myself, so if you know more on the subject than I do, please leave a comment!
A disclaimer: I’m not in any way a tax professional or an accountant. This is just what I’ve figured out on my own through some research and I encourage you to consult a professional. This is just an overview on what you are getting yourself into financially.
Keeping track of your money is simple. One of the best tools for this is Microsoft Excel. I’m not going to tell you how to set it up. That is for you to decide. You need a system that works best for you. But, you can find templates pretty easily online. Just do a Google search for Excel templates or Excel financial templates. You need to keep track of all your income. Royalties, profit from print books sales, and any other income you receive. Keep in mind you will be taxed on all this income.
I set aside 1/3 of my royalty checks for taxes. It’s probably more than I need, but it’s nice to have a cushion–just in case. If the government doesn’t take all of this, then you’ll have some extra money after tax season to do whatever you want to with.
Now that you are keeping track of your income, what about all that money you’ve spent on marketing and your career as a writer?
There are plenty of costs that are tax deductible. That means, if you’ve spent money on marketing, work related travel and other expenses you can get it back by deducting it from your taxable income as a writer. Remember that 1/3 you set aside from royalties? Well, you may get to keep more of it, if you keep track of your business related expenses.
Stuff like business cards, marketing materials, advertising, legal services, work related travel expenses, and even books you buy that are related to your field may be tax deductible. That means you need to keep your receipts and keep records of those expenses and why they were necessary for your business. A tax professional can help you decide what expenses are tax deductible and which ones aren’t.
Here is a question for you: If you go on a trip with your spouse (who isn’t a writer and won’t be attending the conference) to a writer’s conference and stay in a hotel where the rate is $100 for one adult and $140 for two adults, what portion of the bill is tax deductible?
A: $100 – the amount it would have been had your spouse not come.
B: $70 – or half of the bill.
C: None of the bill is tax deductible if your spouse is in the room.
Answer in the comments and I’ll be back later to tell you the right answer! You can learn more about deductions from Julian Block’s Easy tax Guide for Writers, Photographers and other Freelancers.
Next we are going to talk about sales taxes on print books that YOU sell. Chances are if your book is in print, people in your home town want it. Therefore, you need copies to sell on your own. When you sell these, the LEGAL way to do it is to charge state sales taxes. I live in Nebraska. So I have a sales tax rate of 5.5% and a local tax of 1.5 % that I need to pay for each book I sell.
My books are selling from my publisher at 16.95 (I do receive royalties from the copies they sell) I can buy books from them at a discounted rate to sell on my own. I have decided to discount them for my local buyers to $14.02 which bring the total, with taxes to exactly $15. That mean $.98 goes to the state for sales taxes, (round to $1 if you want a bit of a cushion).
You aren’t done! Say you pay $10 for each book that you sell at $14.02 ($15 with taxes). Take $14.02 minus $10 and that is your profit ($4.02). Profit means income and you will be taxed on this amount when income tax season rolls around. That means you set aside 1/3 of that $4.02 for this (according to my system). You can set aside more or less depending on what you are comfortable with. If you think you’ll be able to pay your taxes out-of-pocket then you don’t really need to set money aside. Keeping records will help you determine this. Also, consult a tax professional. They will be able to tell you the best way to pay your income taxes. Make sure you keep records of all your sales, and check the sales tax amounts in your state and city. You may also need to acquire a sales tax permit.
Some forms you will have to fill out as an author, come income tax season:
- Form 1040 (Schedule C)
- Form 1040 (Schedule SE)
Familiarize yourself with these forms ahead of time so you know what to expect. There may be other forms you’ll have to fill out depending on your situation. Again, consult a professional!
Thanks for listening or, I guess, reading. I hope this gives you a glimpse of what is to come when you publish your book and the financial elements involved. Thanks for having me, Jen!
Links to Kayla Curry and Obsidian:
Obsidian Facebook Page
Obsidian on Amazon Kindle
Obsidian All Available Formats