Welcome to Schedule C
Or, business advice for the indie writer. Note: this is US-specific, as I don’t file taxes anywhere else in the world. Check your local laws for the specifics that apply to you; they may vary wildly.
You’ll hear a lot “save your receipts” before you start filing indie pub income (or trad pub advances) under the self-employment taxes. However, there’s a lot more to your spending and saving than just filing receipts. fortunately, we have a handy guide as to when, where, how, and why, called Schedule C.
No, it’s not as simple as it looks at first, yes, consult with your accountant. This is only intended to be the rough overview so you understand what your accountant is trying to tell you, instead of learning in billable time. By the way, you are keeping a spreadsheet of all your expenses and the deductible category, yes? Because if you don’t, then you’re paying the accountant at his rates to go through all your paper receipts and compile one. Save your money! Know what you’re spending and where!
Scroll past that rental income, down to the Income (Line 1). Check with your accountant on whether the income received from Amazon counts as royalties, despite all of us always calling it royalties. That said, if you know roughly what you made, this is a good place to start running rough numbers. The most applicable:
8. Advertising – How much did you spend on Bookbub, Ebooksoda, SEO ads, etc. promoting your book(s) over the year? Yes, every time you pay money to a promo site, you need to a.) print out the receipt and note when, who, how much, and why – advertising – on it, and b.) enter that in a spreadsheet. See also the receipts for bookmarks, postcards, business cards, and other swag given away at cons and fairs, banners for signing tables, etc.
9. Auto and travel (see instructions) Mileage to cons where you promoted your books count. Mileage on travel for research may count. Check carefully!
10. Commissions and fees – this is where you put the expenses you paid people. (Graphic Designer, Commissioned Artist, etc.) Note – your IP lawyer and accountant have their own line!
13. Depreciation – if you have a large expense, you don’t necessarily deduct it all in one year.
Equipment, like buying a treadmill desk, or the company buying a vehicle to cart your booth between cons, can have the expense spread out over several years. This means you can use the expense against taxes in future years when you’re making enough money it matters, instead of having it drop you below a threshold you were already below this year. Check with your accountant for when this is a good idea, or must be applied.
17. Legal and Professional Fees – Yes, your accountant’s bill, and the IP Lawyer’s bill, are deductible expenses.
18. Office expenses (see instructions) – Office supplies and postage. If you’re stocking up on cheap notebooks and office supplies during back to school sales, you’ll want to make sure they’re on a separate receipt from your groceries, or separately total out the office expenses on the receipt.
20. Rent or lease – including if you rent an office. For home offices, google “home office deduction”, because that’s its own creature, and complex.
22. Supplies – trickier than it looks; this is “supplies consumed in this tax year”, not “supplies bought this tax year.” Can include books for research & equipment if used within the years – but if the use extends substantially beyond the year (new computer), it goes into a different, depreciation-taking line.
23. Taxes and licenses. Are you in a crazy suburbia where they want to charge you a business tax or fee for a home office? Do you need a business license every year in the state you incorporated? This is where you report those amounts paid.
24. Travel, meals, and entertainment – this is why you want the bill, and you want to write on the back of the receipt who you had the meal with, and why. Because sometimes it’s deductible, sometimes not. Check the instructions.
27. Other expenses – did you spend money in ways not covered above? Check with your accountant if it can go here!
The simple explanation is: The government will do its level best to take all the money you made in a year, and leave you destitute while it spends more profligately than drunken sailors (drunken sailors stop when they’re broke. Our government, not so much!) However, it recognizes that if it takes everything you made, you’re going to immediately go bankrupt because you’ve had to spend money to pay the bills. So it’s trying to take all the money you made except what’s already spent, in a tug-of-war between wanting strip you of every cent and recognizing that bankrupt businesses don’t make more money that they can legally steal to blow on vote-buying, enforcing idiotic regulations, expanding bureaucracies, lavish parties, and kickbacks to fellow travelers.
Therefore, you as a business owner, wanting to actually keep some of that money you’re making, need to carefully track every cent you spend. Then, find the best way to pay for it with pre-tax dollars so your remaining income looks pitifully small and not worth taking. You know, so you can spend it on things like food! Food is good. If you want food, track your expenses, save your receipts, and deduct everything you can. Check with your accountant more often than just filing time, and learn what he can do to help you help yourself!
And now, for some books to amuse, inform, and entertain:
If you want to get some valuable advice on the balance of being an artist/author, a marketer, and a businessperson, MCA Hogarth has collected her Three Jaguars business cartoons into a print book. Not only good advice, it also has moments of hilarity, and a paintbrush-proof mug!
Get it here! http://amzn.to/2d0rkhK
or, if you want to run away and do something bright and cheerful and not at all related to business after this post, here’s one of her colouring books for adults.
Hearts, stars, unicorns, dragons and honey badgers, velociraptors drifting in space… shiny! http://amzn.to/2cjv5w4