In my last bit on taxes, I went into what I’ve learned as far as tax deductions. Now comes the less fun parts.
Writers, God(s) help us, are considered self employed. This has a number of effects upon the money we earn and the taxes we have to pay. As far as the US tax system and the IRS, being self employed puts most of the burden upon the writer.
There’s three types of tax that all US Citizens pay. There’s Social Security, Medicare, and then income tax. Normally, you only have to pay a net 7.65 percent of your income to social security and medicare. The problem is, your employer is paying the other 7.65 percent. As a writer, your employer is you (regardless of whether you publish with a big company or not, they push the onus of paying that to you), so you have to pay all 15.3% as the self employment tax. Now then there is income tax on top of this. What’s nice about being a writer is that your deductions come from both areas, because your income is what is left over from your earnings after your expenses. In case you didn’t notice, right off the bat you’re in around a 30% tax bracket. This is pretty painful if you’re writing with no other income. It is especially painful when you are supposed to pay your taxes quarterly, or face fines from the IRS, and you may not receive your royalties until months after the quarter (trust me, it’s happening to me now, it hurts, I’m paying taxes on income I still haven’t received, which comes from my savings…) Bringing those taxes down a bit you have the things I listed in the previous tax article, which is why keeping track of all that is essential to making sure you keep a little bit of that hard earned money.
The problem some authors run into when they file their taxes is that they see their income as royalties and try to file them that way. Those kinds of royalties are more for land owners who earn royalties on mineral rights. Your royalties from book sales are income, much like a contractor. That’s how you should report it and that’s how you should take deductions.
This is important because if you are a professional author, this is your income. You’ve probably spent tens or even hundreds of thousands of hours writing, honing, and perfecting your craft. You’ve earned that income, you can’t avoid paying the taxes on it, but you can make sure that you only pay as much as necessary. As a disclaimer, I am not a tax professional, I’m heavily reliant upon the things I’ve learned from writing conferences (where they have tax panels) as well as using programs like TurboTax and even going to some tax professionals. Also, this is just an overview, more to get you thinking in the right direction than anything else.
Here’s some links you may find helpful