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The Self-Published Author as the Self-Employed Author

6 December 2011

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:

  1. 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).
  2. 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.

The Business of Writing

5 Comments to “The Self-Published Author as the Self-Employed Author”

  1. I’ve been in IT for… well, let’s just call it a LONG time… and that external drive has got to be the single coolest-looking peripheral I have ever seen.

    Thanks for the tip, PG!

    Oh, and I was already doing all the stuff you and Jeff suggest. It never occurred to me to do it any other way. Great info for those who haven’t thought of it!

  2. Thanks for posting this. This particular side of the authoring business is something I haven’t seen KKR or DWS cover yet. (I do keep meaning to go digging on their blogs and see if I’ve just missed it.) Any pointers to decent books (NOLO guides or whatever) on the whole tax and legal need-to-know for the author’s life would be welcome too!

  3. NOLO has a very good book, “Working for Yourself: Law & Taxes for Independent Contractors, Freelancers and Consultants”. I believe the 8th edition is the most recent, It has all the forms you need, but as PG says, Quicken or a similar program is a must.

  4. From your description, it looks like you are resigned to Quicken .. but there are some other options that I use:
    -LibreOffice Calc (spreadsheet)
    -Gnucash (accounting package)
    But having run the gamut of businesses from consulting to corporations with full ERP systems .. the spreadsheet should fulfill most of an author’s expense and revenue tracking needs.

    For data backups .. you should look into a local RAID system with remote Rsync technologies. This can be accomplished with:
    -Open Media Vault (reuse that old desktop pc you still haven’t disposed of), two drives in a RAID mirror setup. I have also used FreeNAS.
    -“Ubuntu One” or “Dropbox” systems for remote storage.

    Hard disk drives fail, probably the first things that go on a computer, unless you drop your laptop and then it’s anything. Using a RAID setup instantaneously backs up your files on a pair of drives. If one drive goes out the second drive still has all your data. The other benefit is your data is on one network drive so you have access to it from any machine you’re using in the house. The next level is using Rsync to back up the daily changes on that RAID server to another machine at another location automatically.

    I actually had one of the drives in my network storage RAID box go down about two weeks ago. Of course my first thoughts were, where might I have recent copies of that novel I wrote all summer and was getting ready to publish? Had I not had that storage setup I’d be starting from scratch or finding something on a random flash drive to try recreating the manuscript from. Lucky for me the prior storage planning saved the day and my latest novel went live on Amazon Kindle yesterday.

    All the technology I list above is free.

  5. As a side note, I have set-up my DBA account for business. However, in going to the bank the other day to check on a fee, I found that SOME banks are now charging to apply anything other than a direct deposit.

    Now I realize that EFT’s (electronic fund transfers) are considered direct deposit by mere mortals, however, some of the banking gods do not. They will charge $10- or more to have this deposited into your account.

    Also, if you don’t maintain a balance of a certain amount, or the deposit is not a certain amount, a fee will acrue.

    Another big red flag was their fee for receiving international funds. (My bank’s fee was $18-) so if you are selling books overseas, make sure they are paid for in USD.

    I thought setting up a DBA account was the best way to keep my book business and personal life separate, but until the “big” money comes rolling in, my banker told me I should have stayed with my personal account.

    So please make sure you check all business accounts thoroughly before setting one up. The hidden fees will get you every time, and having one may not be in your best interest until you have a certain amount of income generated.

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