My husband, our son, and I went out to eat on Friday and then stayed up late (three hours difference between Indiana and the west coast) watching the Olympic ceremonies (hence my lack of posting).
Yesterday, I spent the entire day organizing our taxes. I don't know about other writers, but when I began to write and then later became published no one mentioned anything to me about the need to file taxes for my publishing expenses and revenue. I had a small business years ago and have maintained my tax exempt number, but knowing what to claim and how to keep record of book sales and my expenses was something I had customize for myself. I posted the following article on record keeping a few weeks ago on my other blog, Murder By 4, so for those who missed it, here it is again.
When I chose to write fiction, I became the dutiful student. I was determined to teach myself how to write a well-crafted book--bought every book I could grab on writing prose, characterization, dialogue, action scenes and so much more. I followed blogs, joined in conversation on forums and asked as many questions as I possibly could about writing and the publishing process without sounding like a total newbie. I later studied the art of book promotion and marketing--another important piece of the pie.
This was all well and good, but no one ever said, “Hey, don’t forget the tax man!” In fact, once I decided to blog on this subject, I looked through several of my reference books. I wasn't surprised to see that none of them mention a word about taxes or record keeping.
With April 15 looming in the not so distant horizon, I spent this entire past weekend organizing my publishing and personal tax information for our accountant. The subject is still fresh on my mind and thus I thought our readers might be interested to know what else I do when I'm not writing. Please keep in mind that although I've taken a couple of college courses in accounting, I’m not a tax guru or an accounting whiz kid--not by a long shot. I pay good money to an excellent accountant to work the magic for me. But I am organized when it comes to tracking information. Please understand that what I’m about to share is based solely on what has worked for me and what I’ve learned along the way.
First, hire an experienced, trust-worthy accountant. Can’t say enough on this one.
Tax Exempt Status
If you haven't already, check into getting tax exempt status. Visit the IRS http://www.irs.gov/formspubs, do a search on “tax exempt application” and read up on it. Ask your accountant for information or contact your state’s department of revenue to acquire an application. A tax exempt number will allow you to purchase items without paying taxes on them initially. You will, however, need to record your purchases and pay the tax to your state’s department of revenue either quarterly or annually, depending on how your account is set up.
A tax exempt number is also critical if you plan to sell items at locations other than bookstores where you need to bring your own supply of books (libraries, book clubs, etc.). Why? Because like it or not, Uncle Sam requires us to charge sales tax on the items we sell. In return, we're expected to write a check to our state department of revenue for the amount of sales tax collected throughout the quarter/year. If you sell book to a tax-exempt entity like a library, you’ll need to track those sales as well because they’re part of the equation needed to calculate how much tax you owe the state.
IMPORTANT: Keep your personal money and your writing revenue/expenditures separate. You'll sleep better at night for it.
Open a checking account to use for the sole purpose of tracking writing related expenditures and revenue. Another good way to track expenditures is to dedicate a credit card for writing expenses. This is critical if you have monthly fees for web server services, pay membership dues online, purchase books, etc., and your invoice will serve as an excellent proof of purchase if you’ve misplaced a receipt.
Set up a file folder and keep every receipt for items purchased relative to writing/publishing. You’ll need the receipts to back up your records in case there are any questions. Print payment acknowledgements when you purchase online. It's better to have more in your file than not enough.
Create a spreadsheet that includes, but is not limited to the following columns:
• Date of purchase
• Supplies (pencils to paper and everything in between.)
• Postage expense
• Travel & lodging expense
• Books & publications (reference books, writing magazine subscriptions, etc.) Web development (server fees, etc.)
• Equipment (computers, software, cameras, recording devices, printers, fax, etc.)
• Repairs on equipment (did you need to have that nasty virus removed from your computer? Claim it.)
• Printing expense (bookmarks, forms, stationary, etc.)
• Books purchased from your publisher for resale
• Dues paid to writers organizations and website membership fees
• Promotional fees
• Contest fees
• Clothing expense (Did you buy a new outfit for your book launch signing? It's deductable.)
• Sales incentives (items purchased as giveaway items)
• Long distance phones/fax bills (radio interviews, calls to your publisher, editor, agent, etc.)
• Workshops & conference fees
• Misc. (Often one-time expenditures that don't fit neatly into any of the other categories)
You get the idea, right? You may find other categories to add that fit your situation too. Make sure you total each column vertically and horizontally and that your entries match the dates and amounts on your receipts.
Track your donation/giveaway or gifted items.
If you've purchased books, you undoubtedly gave a few away along with posters, bookmarks, book bags, and other items. Be sure to include the quantity of each item and the cost. Books you've mailed for contests should also be included here. You’d be surprised how quickly this adds up. Keep track of them and their cost.
This includes royalties and any other money collected.
Keep track of books/items you sell to other tax exempt entities.
I sold a few boxes of books to a couple of local libraries this year. The libraries were tax exempt too and will pay the tax due on the purchase of my books directly to the state department of revenue when they submit their quarterly or annual report. I, on the other hand, had to report the dollar amount I received from them for the books under “Exemptions/Deductions” in my annual report to show the sale. Be sure to always keep photo copies of your report and record of payment of taxes due.
If you’re not yet published, keep receipts of any writing related items you purchase; books, conferences, classes, writing magazine subscriptions, workshops, travel—anything that is intended for the purpose of eventually getting published. Once you are published, you’ll be able to claim all past purchases as long as you have the receipts (this per my accountant.).
Even if you have an accountant to figure all the details of your tax return, you still need to present the information to him or her in an orderly manner. No shoe boxes allowed!
So, do you still think your job as a writer is over when you type, “The End?” Think again!