Taxes and Authors
- By: Jessica Faust | Date: Oct 25 2011
Can you please tell me if a publisher takes care of income tax in royalty payments? Or is paying tax the job of the author or agent?
As an author you are not an employee of the publisher, you are an independent contractor. Therefore you are responsible for filing your own taxes and paying them (quarterly). Typically, all payments are sent through your agent and issued from your agent, less her commission. Therefore, at tax time you should receive a 1099 from your agent that shows your actual earnings. And don’t forget to save those receipts for things like your computer, Internet access, printer ink, or the ereader you use. All of those would be considered business expenses.
Jessica
**Quick disclaimer. I’m not even close to a tax attorney so before filing make sure you check with your accountant on what you really can write-off and what you can’t.
Oooh, very good to know! I'm already at a job where I file quarterly taxes, but I don't get to claim anything as a business expense, so that sounds like a dream come true!
Thanks for the reminder! This will be new for me this year. My hubby and I file jointly, and do it ourselves on Turbo Tax. I'm wondering how to break this out now…if it's just considered another income or if I need to file separately…guess I need to do some research! 🙂
I run the numbers continuously on Turbotax to make sure I won't get hit with a big surprise at the end of the year. (And Sharla, I don't file separately – it's all just part of Schedule C.)
For more information on claiming the income and expenses, go to the irs website (irs.gov) and read the information on Schedule C (that's where royalties are reported for writers). It's NOT a separate return, but part of the individual return, just another schedule, like the ones for itemized deductions, or rental income. Search at the irs site for "schedule C." And then consult with a professional, at least for the first year. It's worth the expense to get it set up right, and to find out any local twists on the tax/business rules.
I was actually just wondering the same thing! This was very helpful 🙂
*I* am a tax attorney and everything she listed is deductible–but some things are depreciable assets and should be treated a little differently.
Also, if you do nothing, your 1099 income goes on a schedule C, but one for writing income. If I ever made money off of my novel, it would be on a separate schedule C than, say, my tax attorney income (if that was on a Schedule C as well.)
Also, if you take steps to set up some kind of business entity for your writing enterprise, you may have to file a separate return for that. Depending on your state, you may be better off doing something like that. States have their own tax rules as well, making it even more worth your while to contact a professional for structuring and operations advice when you first get started.
Interesting subject. What about an agent's client from abroad (say from a country where there is a treaty)? Would the author need to file a W8-BEN or would the agent do that? Or would the author need to pay taxes twice?
Good question Cat.
The author would be responsible for the W8-BEN. We always recommend you start the process the minute negotiations are complete since it can take awhile.
–jhf
I have a question. I'm a starving author who just sold a book for a crudload of money. No, seriously.
Should I hire an accountant or a tax lawyer like Whidget or what?
Wish enough money was rolling in to make me worry about stuff like taxes.
I'd happily spend time up the river for tax fraud if I made that much.
Virginia, the problem is that even if you go up the river you stil have to pay the money.
We used an accountant for many years before my husband retired and took over doing the taxes himself, but there are a lot of things that are acceptable business expenses–conferences, office products such as paper, equipment like computers, scanners and printers, (though as depreciable assets) books (I write romance, so I write off all my romance books, since an author has to stay current with what publishers are buying) Depending on what you write, you can also figure some newspapers and magazines, even some movies as part of your research.
If you have a room set aside as an office, a certain percentage of that can be deducted–anything that goes toward your business of writing, but in order to take those deductions, you must, at some point, be showing a profit.
I looked into setting up an LLC or incorporating, but in California it would cost me more to incorporate than I would save in taxes, so we just stick with the Schedule C.
If you are making any money at all, make sure you keep track of it and pay your quarterly estimates, or it can come back and bite you in the butt. I had one good year when I kept calling my tax attorney with updates and she kept telling me I was fine.
I wasn't. She is no longer doing our taxes.
I'm a Schedule C-er (performer/writer) and have done my own taxes for 17 years, and have been audited (they owed me $13.11, turned out).
Save receipts for everything. Circle the total amount and write on the receipt what it was for. "Paper." "Lunch with Fellow Writer." "Coffee while writing New Novel." You will be glad at the end of the year when they are easy to figure out. It also helps to keep envelopes or one of those canceled-check files, and sort your receipts by category.
Turbo Tax is excellent and easy to use!
Read through some of the IRS literature online – particularly, mileage and per diem. It's not as complex as it seems at first, and there are legitimate, legal, government-stated amounts you can take INSTEAD of what you actually spent, even if the government amount is higher – it's a great way to get maximum deductions.
And check on the rules for losing money – it used to be three years in a row, but that might have changed – if you don't show a profit a certain number of years, it's a hobby, not a job, and you lose all your deductions and may even have to go back and pay taxes from the previous years!
I agree, it's worth it to get a pro to show you, at least at first, but get someone who specializes in writers or entertainers or artists, or they'll be very nervous about getting you your legal maximum on deductions (or just not know them as well).
Keep good records, and be honest – there's no need to break the rules to get a good deal on taxes, as long as you know your stuff, and then audits won't frighten you because you'll have a pack of written records to back you up!
Having a good tax man is so important!
Kate, Allison, thank you!
Excellent website. Lots of useful information here. I am sending it to a few friends ans also sharing in delicious. And obviously, thanks for your effort!
**Quick disclaimer. I'm not even close to a tax attorney so before filing make sure you check with your accountant on what you really can write-off and what you can't.
Definitely a good idea! Some of these things might be deductible, but I've also heard–through the grapevine, not through an official investigation–that some items might be deductible only if they are used solely for writing, such as anything you claim is part of your home office. This could vary by state, etc., as well, and like I said, I haven't done any official investigation or talked to a professional to determine how true this is.
I know next to nothing about taxes. You just threw a huge curve at me by telling me I have to file taxes quarterly.
So it's like the normal April 15th? Except 3 other times a year?