We all know that taxes are unavoidable. As a newly published author, sooner or later he will face taxes, so it is essential that he knows the basics as he begins his new adventure.
In this article, we’ll explore some key tax concepts you need to understand. Please note, however, that this is not a substitute for legal advice; If you have a very specific tax problem, you should consult an attorney or tax professional.
You are reading: Paying tax on self published books
First of all, if you make a profit, whether from your paperbacks, hardcovers, or e-books, then you must file self-employment taxes. in the usa In the US, it’s 15.3% of your net self-employment earnings, also known as earnings, as long as those earnings exceed $400. this includes your social security and medicare taxes.
For example, let’s say you made about $10,000 in sales, but had $7,000 in expenses, paying publishers, freelancers, and graphic designers. that leaves you with a profit of $3,000, and 15.3% of this would be $459.
But what happens if you don’t make a profit and/or incur a loss? Losses are very likely during the first year of being a self-published author, but there is no need to fear.
Let’s go back to the previous example. your expenses came to $7,000, but let’s say you only made $4,000 in sales. when the end of the year comes, you use this to offset $4,000 of your expenses. So what will you do with the remaining $3,000 of loss? well, you can offset it with other income from another source, like a day job or income carried over to the next year.
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this is allowed because u.s. The tax code allows you to deduct your losses from other sources of income. however, you should treat your writing as a way of doing business with the goal of making a profit eventually. after all, this system is created to encourage entrepreneurship. (Your government wants you to be as successful as possible because more income for you means more taxes for them).
so, treat your self-publishing initiative like a business. Employ careful planning and goal mapping, including future expenses and income, as a normal business would. The Internal Revenue Service (IRS) will consider writing as a hobby and not a business unless you generated a net profit in at least three of the last five years. being classified as a hobby will not allow you to offset your losses through other sources of income. therefore, it is in your best interest to treat your authoring as a business endeavor.
In entrepreneurship, you need to market yourself as a self-published author. use various social media platforms like facebook, instagram, twitter or linkedin. You can even set up your own website and visit schools, libraries, and bookstores to promote your books.
You can also get your trade name declaration or doing business as (dba), under which you can conduct your business processes separately from your real name. think of it as a pseudonym but for your business. be sure to look up how to register your dba in your state/county/city. There are many resources online that you can take advantage of, and the us. uu. The Small Business Administration offers free business advice.
When you register your business name, you will be issued an Employer Identification Number (EIN) or Federal Tax Identification Number. this ein can be used when applying for a resale certificate. this ensures that you are a genuine business entity buying or reselling products. This is especially helpful as you plan to sell your books. You’ll also need to research your city or state’s local business and tax rules and requirements that may apply to you, such as business licenses and individual income tax returns.
Another important step is to distinguish between your personal and business finances. use separate bank accounts if possible. This allows you to track your income and expenses more accurately.
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When it’s time to file taxes, report your income and expenses on Schedule C along with your 1040. If the taxes you pay on your income are more than $1,000, then quarterly estimated taxes may be required. in this case, hiring a tax professional is a worthwhile investment at this level.
Lastly, keeping track of all your business records can save you a lot of headache and trouble, especially when it’s tax season. Get an accountant or integrate accounting software for your business to keep track of where the money flows every day.
Remember to save all your receipts in any form, digital or physical. Keep financial records, such as bank statements, sales tax returns, W-9s and 1099s, sales slips for direct sales, correspondence with freelancers, PayPal statements, royalty statements, and other relevant records. Remember to document everything correctly to avoid being questioned by the IRS later on.
We know this can seem overwhelming at first. this is the technical and unromantic side of being an author, but it’s so worth it in the end! By knowing and following this advice, you ensure that your books won’t just end up as a wallet-busting hobby, but an endeavor that could one day replace your day job.
Knowing how to do your taxes right and setting up your writing like a business venture ensures that your books generate a valuable return and that you get rewarded for your hard work.
disclaimer
Remember to consult your local solicitor and accounting firm if you have specific queries, as this is not a substitute for legal advice.
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