From author Jeff Bennington:
As a published author your life will get busier, and it will get entrepreneurial. You might have one or twenty published works, but no matter how many books you manage, you need to think like a business person. With 2011 coming to a close, I thought I’d run a few ideas past you regarding your growing indie book business…
- You cannot hide your book income. Amazon, Barnes & Noble and any other book distributors you sell through will send you a 1099. This is a little form that these sites will use to report your income to the IRS. The days of getting paid under the table are over. And you will have to pay self-employment taxes on any income you receive that is greater than $400.
- I recommend opening a separate bank account to separate your personal income/expenses from your business income/cost of doing business. You may need to get a federal tax ID number, but that isn’t necessary immediately. Your social security number will do for now (But check w/ your state). Also, consider using your publishing name as your DBA (“Doing Business As”), the name of your business. I use Nexgate Press as my DBA. With this account, my book distributors can direct deposit into my business account; a very clean and efficient way of doing business.
- Keep track of your expenses including everything from shipping receipts, paperclips, marketing expenses, production costs and other costs of doing business. All of these expenses will reduce your taxable income, so try not to miss anything. Be diligent in your records and you’ll know for sure if you’re making money… or not.
Link to the rest at The Writing Bomb
Jeff warns visitors that his tips originate in US tax law and authors in other countries will have different rules.
PG will supplement Jeff’s suggestion to open a separate bank account with a couple of additional suggestions:
- If you don’t already use Quicken or a similar program (if there are still any surviving competitors), doing so will greatly simplify the process of keeping tax information and either delivering it to your accountant or doing your own taxes at the end of the year. Most banks allow you to download all your transactions directly into Quicken. You want to make sure you use Quicken to categorize all your business expenses and you may want to use the business expense categories the IRS uses. If you already have a copy of Quicken for your personal bank account, you can add your business bank account as a separate account without buying a new copy (or at least PG can with Quicken Deluxe).
- Use a separate credit card for business expenses requiring a credit card (like online purchases). PG doesn’t know if other credit cards allow this, but you can download your American Express credit card transactions directly into Quicken, then assign them to expense categories as described above. So, when PG buys yet another toner cartridge, he charges it on his business Amex card and categorizes it as office supplies when he sucks it into Quicken.
Passive Guy has mentioned how much he loves the little Fujitsu scanner that sits right beside his keyboard. One of the requirements for deducting business expenses is proper documentation of those expenses. The scanner makes it simple and quick to scan copies of business bills, receipts, etc., into a folder called 2011 which is inside a folder called Business Expenses on his computer.
Why is that better than putting the piece of paper into a physical file folder? For one thing, it takes up less space, but even more importantly, nobody has backups for their physical files. PG backs up all his tax information at least daily on local external hard drives that look something like this, on every other computer he owns and at an offsite location.
Since the scanner, backup software, hard drives, offsite backup, etc., are used to preserve tax records, business records and all of PG’s and Mrs. PG’s book manuscripts in draft and final form, PG had no hesitation about deducting the cost of such as business expenses for tax purposes.