Phew! April 15 has come and gone, so now we can stop thinking about taxes, right?
Not necessarily. While I am in no way proficient in tax law, I am an expert in worrying and I am already worrying about next year’s taxes. You should, too.
If you are a new author or plan to publish a book in the future, it’s not too early to start planning for next year and making sure you’re doing it right so far this year. Here are some questions you will want to get answered in the coming months:
Is your writing a hobby or a business?
The U.S. government treats you differently depending on which designation you fall under. Hobbies don’t need to be profitable. Businesses should be profitable, but they can also deduct business expenses.
Should you incorporate?
There are different ways to become an official business entity and they all have their pros and cons. Research the options so you can make the choice best for you.
Do you need to collect sales tax?
If people buy your books from Amazon or from the local bookstore, those entities collect sales tax. But if you take a box of books to sell at a fair or market, you may be the entity that needs to collect the sales tax.
Can you deduct expenses?
Attending a writers’ conference can get expensive with travel costs, event tickets and educational materials. Knowing what expenses you can balance with your income could help you decide whether you can go – or not. Other expenses to ask about include cover design, Facebook advertising, giveaway bookmarks and so on.
Are there any other useful deductions?
Your mileage might deductible is you travel to speak with scout troops or help seniors with their memoirs as a volunteer.
What if your book doesn’t get published until next year?
You may be spending money now on research and design, but you won’t see any income until after the book finally gets published. The IRS has specific rules for that situation.
Do you need to file tax forms for the folks who did work for you?
You probably will pay people for help, such as the artist who created your cover, the research assistant who gathered your facts, or the editor who massaged your manuscript. Depending on what they did and how much you paid them, there may be forms to be filed.
As I said before, my expertise is in worrying, not tax planning. So my best advice is to keep really, really good records. Use apps like MileIQ to track your mileage. Note how many books you sell, as well as when and where you sold them. Safely file away receipts for any possibly-related expenses. Ask your fellow authors who does their taxes. And most importantly, get started NOW, before you run out of time or lose important information.
It could make all the difference to you next year at this time!