Category Archives: Taxes

Manage Your Business

The Fictorians and our guest bloggers have spent the month of March covering a number of legal topics and issues with which we feel every writer should have some familiarity. If we didn’t cover a topic you’re interested in, drop us a line and we’ll see if we can squeeze it in in the upcoming months.

All of these posts, however, rest upon a common premise; that is, as writers we should also be business people. Writing a work is only the beginning of the story—getting that work published and in the hands of readers is the rest of it, and that takes some understanding of a lot of different aspects of the business. And perhaps even more of the story is revealed when you consider how you’re going to keep that work in front of and available to readers after the initial blush has worn off. That’s all part of the business world in which we writers—now more than ever—have to operate.

We have to be business people, and we have to be focused on our own business—the marketing and dissemination of our creative work. Emphasize the ‘we’. Underline it, put it in bold italic 24 point Gothic font with flashing red lights. If we don’t manage our own business, if we don’t take responsibility for managing our own affairs, we can’t expect anyone else to do it for us. We have to know enough to take care of the day to day work and decisions. We have to know enough to know when we need to consult with or hire a professional to address a problem. And we have to know enough to be able to tell if that professional is getting the job done.

I wish that Robert Asprin was still with us. More than any other writer I know, he could have given a testimonial about this.

Robert was a pretty successful mid-list fantasy and science fiction author in the 1980s-1990s, who unfortunately ran afoul of the Internal Revenue System after one of his books actually made it to the New York Times bestseller list. I don’t know all the details of the story, but I do know that he ended up having to make monthly payments to the IRS for over a decade. He died in 2008, literally just a few weeks after making the final payment to pay off his tax bill.

So, yes, paying attention to detail and keeping track of the information and getting the forms right and turning everything in on time is important. Robert would bear witness to that. Just like reading the contracts and taking the time to learn what each of those paragraphs of legalese really means is important if we want to continue to own and manage our works.

The problem is that most creative people really really really don’t like the boring humdrum routine of doing what the commercial world calls the back office routines. I certainly don’t. But if we don’t stay on top of our correspondence, if we don’t gather all the material together for tax preparation and payments, if we don’t read those contracts before we sign them, etc., then we’ll deserve the problems that come of them.

The goal of every Fictorian is to not only be a successful writer, but to be a professional writer. Hmm, actually, that may be two different ways of saying the same thing; because every successful writer that I know is also very professional about taking care of business.

That’s the consistent message of the Superstars of Writing seminars: that to a great extent, a writer’s success is founded on not just his skill at the craft of writing, but also how well he manages the business side of his career.

So in pursuit of that goal, we’ve spent this month talking about various aspects of the writing business. Our hope is that you’ve found knowledge or confirmation among the various topics. Keep in mind that none of what has been presented represents legal or financial advice. Always consult an attorney or an accountant if you have issues arise. Pay the money. You’ll be better off, and the fees are tax deductible.

I want to thank all the Fictorians and guest posters for their many and excellent contributions, most especially M. Scott Boone who gave us not one, not two, but three guest posts this month.

Stay tuned—we’ll resume our themes about the writing side of the writer’s life tomorrow.

My Journey to Professionalism, Step 2: Creating My Business

In order to make a living at my writing, I must act like a professional writer. At first, I thought that meant that I needed to establish an identity and brand myself as a writer. Though that is true, I recently realized that that is only part of the story. I invest money into Nathan, but do not track that expenditure as well as I should. I’m an engineer by training, not an accountant. This means that I must learn a new set of skills.

Unfortunately, I can give much less concrete advice on this topic that I could on yesterday’s discussion on branding. I am still exploring my options, and seeking advice for my own use. So instead of giving advice on the end game, I’ll try to explain my process so far, what I have learned, and maybe save my readers a few steps. If, on the other hand, one of our readers were to have knowledge and expertise beyond my ken, I will be monitoring the comments very closely. 🙂

First, I need to set the direction of my business. What are my business goals, and what timeline do I wish to establish these goals upon? I am doing research online about writing formal business plans, and will sit down to do so in the next few months. I am looking at my next creative projects, and judging them based on their business value rather than my personal entertainment. Being a businessman is as much a mindset as anything else.

Second, I am looking at what sort of business I need to establish. I have learned that if you do not set up a formal business framework, you, by default, form what is called a sole proprietorship. This is at least how it works in the United States. In this sort of business structure, individuals can sue me directly for my business debts. Though the sole proprietorship gives me a framework to operate within, I am not too fond of this drawback. General partnerships seem to spread this risk between multiple individuals, but my writing business would not involve another at this time. So, that business structure does not fit either. Instead, I am looking at establishing either an LLC or Corporation.

As per my understanding, both of these structures create a separate legal and fiscal entity, sheltering me as the owner from some liabilities. The legalities behind these types of business entities are a bit more complex, ranging from their formation to how they’re taxed, to how they are viewed in a legal setting. I am taking my time with the research, seeking to understand as many details as possible before I move forward. It seems like I can transform one type of business entity to another, but it also seems simpler to adopt the best fit from the beginning.

LLC or Corporation

To learn all this, I am googling my local state’s tax laws, Corporation codes, and reading a book called LLC or Corporation? By Anthony Mancuso. The book is part of a series called “NOLO” that describes the law in simple terms and includes web support for free legal updates. It was highly recommended based on reviews, so I gave it a try, and have not been disappointed.

While I am working on forming my business entity, I am also cleaning up my books. Though I have limited financial training, I have an understanding of the basics of business accounting. Though most of my cash flow to date has been expenditure, I found that much of this can be deducted from my personal taxes at the end of the year. Eventually, I intend this to be a thriving business, so it is for the best to get into good accounting practices now.

Accounting Made Simple

To help me with this end, I have purchased a copy of QuickBooks, which I’m using to help track business expenses such as writers resources, conventions, and even my new laptop. At the end of the year, I’ll use QuickBooks exports with my tax preparation software and hopefully get a good return from the investments. I am also working to improve my knowledge of basic accounting, with online articles and books such as Accounting Made Simple by Mike Piper. Though this book will not make me an expert, it is a quick guide to help me avoid an expensive faux pas down the road.

I recognize that I have a great deal more studying to do, on both business structures and accounting. I am however just lifting my foot to take the next step in my journey as a professional. I spent a long time learning to be a writer, and now I am learning to be a business person. I can’t expect to be perfect overnight, but I believe that hard work and diligent research will translate into future benefit. After all, it’s one more step in the right direction.

The Tax Man for Canadians, Part Two

 

When you’re doing your taxes, you’ll need receipts for your expenses for the previous calendar year (for example, in April 2014, I’ll be claiming expenses I incurred between January 2013 and December 2013). The receipt for the computer I bought five years ago isn’t claimable, even though I used it this year to write stories. I also can’t claim gifts, like my desk chair.

 

Saving your receipts is critical. Without receipts, you have no proof of the expenditures you made. Always assume you’re going to get audited; receipts are required to show that your claims are legitimate! Here are some examples of expenses which you can claim on your taxes. Some of them may surprise you…

 

– If you write at home, you can claim a portion of your living space as a workspace. Travelling through the house on your laptop doesn’t count! This would be the portion of your living area where you have your desk and do most of your administration and writing.

 

– You may be able to claim certain portions of bills for communication tools. In my case, I use the Internet to submit stories, learn about calls for submissions, publicize my writing, and research for stories. I’m not going to be able to claim a portion of my telephone expenses, because I do all my writing business via the internet. If that changes in the future – if I have an editor or agent who regularly contacts me by telephone – then I may start claiming phone expenses as well. This claim is based on a percentage – how much of the total use is used for business purposes – and an accountant can help you figure out this calculation.

 

– Tools and equipment for writing, which may include a lap top or desktop computer, word processing software, desk, chair, and data backup.

 

– When you buy a book, save the receipt – it counts as “research material,” since by reading, you’re learning the techniques of effective storytelling and staying current on what’s being published in your field. But be judicious. If you’re selling your work as a short story writer or novelist, you’ll have trouble justifying the purchase of screenplays or graphic novels as “research materials”.

 

– Courses, seminars and conventions to improve your craft and/or network with others in the writing field. Marie advises she can claim travel to two conventions a year, and receives credit for approximately 50% of her expenditures. This includes registration, travel costs, and hotel fees if applicable. Note that these cons are for business purposes. I’ll be claiming Ad Astra, where I met with an editor, and Can-Con, where I presented panels to promote my writing. I won’t be claiming TFCon, which I attended for pleasure, not writing-related business.

 

– And while you’re travelling, save your receipts from meals. You will need to write on the receipt itself how the meal related to your business, ie, breakfast at a convention, lunch with an editor. Don’t claim alcohol. Incidentals, such as coffee or tea, are questionable. Also, keep in mind that if you’re part of a writer’s group that likes to get together over dinner to edit each other’s work, that will likely not count as a professional expense. It’s the difference between a bunch of co-workers getting together, and a working lunch with a potential client.

 

Marie Bilodeau, who’s been claiming her writing income for the past five years, strongly recommends the services of an accountant, preferably an accountant who will represent you if you are audited. This service is a bit more expensive but will be worth the peace of mind knowing that if your taxes must be justified, the person who did them will be responsible for performing the justification. The figures to claim the correct percentages for small business income can be quite complex for someone unfamiliar with tax preparation. If you’d like to save money, Marie recommends creating an Excel spreadsheet tracking your revenue (income) and expenses, with the receipts to justify your entries. Having this information organized (rather than making the accountant do it) may entitle you to a discount. Always speak to your accountant to clarify the fees and the services you will receive for that money.

 


 

Here are some more links that may be of help:

Mystery Writers Ink’s Tax Tips for (Canadian) Writers: http://mysterywritersink.blogspot.ca/2011/01/tax-tips-for-writers.html?m=1

Canada Revenue Agency: Visual Artists and Writers: http://www.cra-arc.gc.ca/E/pub/tp/it504r2-consolid/it504r2-consolid-e.html

The Tax Man for Canadians, Part One

Today and tomorrow’s posts are in recognition that not all of the Fictorians are American, and neither are all of our readers. These blog posts, written in conjunction with Marie Bilodeau, are from the point of view of two Canadians. Marie’s been claiming her writing income on her taxes for 5 years, and I’ll be doing the same this year, for the first time. If you’re not Canadian or American, we strongly recommend you look into tax laws in your country to determine whether it is worthwhile for you to claim your writing as a small business, how to go about doing so, what types of expenditures qualify as “business expenses”, and how to claim income from your writing career.

If you’re a writer selling your fiction, then congratulations – you’re a small business. Operating as a small business entitles you to certain exemptions at tax time that might help you to save money. However, the law also requires you to pay taxes on your income – something which may not be deducted automatically, particularly not if your publisher is in a different country than you.

If you’ve not yet made your first sale, or if your first sale is small, it’s too early to claim writing expenses on your tax forms. You may view your writing as a business—in fact, it’s wise if you think about yourself that way and conduct yourself professionally—but until you begin making money, the government will class your writing as a “hobby” and you will not be considered eligible for tax credits. However, you may still be able to claim certain writing or business related courses as adult learning, or skills upgrading, depending on a variety of living factors. An accountant will be able to advise you whether your courses are claimable.

Saving money on taxes by claiming writing expenses is great! Where’s the downside? The downside is that you must report all the income you earn from writing and, if necessary, pay taxes on that income. If you receive a paper cheque, save the income slip that comes with it. If you’re paid via paypal, print out the email that indicates you’ve received a payment. Make certain to report ALL the money you’ve made from selling your writing to publishers. It’s better to report too much, than not enough. Unlike with most jobs, where tax money is taken off before you ever receive your pay cheque, in these cases, you will receive the bulk amount and be expected to save enough of it to pay for the taxes come tax time. Keep savings in reserve for April, and then, if your tax bill comes to less than you expected, you can spend or save the remainder.

As a rough guideline, don’t expect your savings to exceed your earnings. That means, if you make $600 of writing income in a calendar year, but your receipts entitle you to $900, you’ll only qualify for $600. It may still be worth claiming all the receipts, though, as you’ll be able to carry your losses forward.

However, if your business loses money (you spend more than you make) continually, red flags may be raised. Businesses are expected, eventually, to make profit; an activity that always takes money might be better classified as a hobby. If you don’t get a big contract right away, and are spending a few years selling a short story here and a novella there, Marie and a fellow writer recommend that every 3-5 years you consider reporting a profit to prove you are a viable business—if you’re a voracious book-buyer like me, that may simply mean not claiming the vast quantities of books you buy that year as “research materials.”

Come back tomorrow for Part 2: Receipts , Working With an Accountant and Useful Links.