Unintended Consequences

by Janis Patterson

Oh, I thought I was so smart. I would self-publish my backlist (which I did) and make a lot of money (no so much and nowhere near what I’m worth) and be in charge of my own destiny (talk about being a dreamer!). The idea of being head of my own publishing company was irresistible. I would choose covers, I would have the final say over my editors, I would control my publicity and advertising (at least to the extent of my budget). I would…

And all that came true, plus a lot more I didn’t anticipate, in spite of having been in the business community one way and another since I was very, very young.

Running a publishing house – even a teeny-tiny one-person, one-author house – is very different from running a lemonade stand. You just can’t take what money comes in and blithely put it in your pocket, darn it! Like it or not, we one-woman-show publishers are pretty much subject to the same rules and regs as the Big 5.

We all – or we should – take all the deductions for business-related expenses that we can, whether as author or as publisher. One benefit is that a clever author can make almost everything a deduction. For years when The Husband and I have taken a trip of some duration (not just a weekend) I come home, write three chapters and a synopsis set in wherever it was we went and send it off to some publisher or another. Thereby our trip becomes a research trip even if the book doesn’t sell. The only bad thing about this is that some of these books – which I never really intended to write – actually sold, so I had to finish the things. Unintended consequences.

Being a publisher is in a way just more of the same. Cover artists and editors and PR people are all legitimate tax deductions, but it gets complicated. Do you send them 1099s? What if they’re out of the country? Well, that depends on a lot of things, some of which my accountant and I are still wrangling about. I haven’t had to worry about capital gains yet – little enough capital and no gains to speak of – but that will come. Should I create an LLC or incorporate? It was about here that my accountant started to babble, so we will leave that for another time when the monies are sufficient enough that I feel they could justify such a discussion.

Though it sounds odd to say, thank goodness this year I didn’t earn enough as an author/publisher to have to worry about such things, but as I write more and more books and – hopefully – sell more and more books, these problems will become something with which I will have to deal.

Sigh.

Why do things have to be so complicated? And so extortionate? In a country developed by and made great by entrepreneurism and free enterprise, you would think that the government would be encouraging people to work and start businesses and keep the engine of the economy expanding instead of nit-picking and taxing and penalizing the system to death. It just doesn’t make sense. The unintended consequences of such freedom-hating anti-capitalism attitudes are almost too horrifying to contemplate.

My father once said that no matter how carefully we choose our actions, no matter which path we take, we can never be sure of the outcome because there will always be unintended consequences. How right he was!

Writers and DBAs

This is reposted from Travels with Kaye earlier this week so it can reach a wider audience.

Another post about taxes. It’s that time of year! You probably haven’t finished them yet if you get any income from Amazon, since they say they sent out erroneous 1099s and have only recently sent out corrected ones. If you have income from several countries, good luck figuring out which new 1099 is the correction for which old 1099. Here’s a bit of help. Look at the EIN. I don’t recall who posted this on what list, but I copied it:

83-0417755 = Amazon US, CA, and IN
46-2971461 = Amazon Australia
46-2796183 = Amazon Mexico
98-0429507 = Amazon Services Europe - UK sales
98-0480990 = Amazon Media EU Sarl - DE, FR, ES, IT sales

This is incomplete, as that person doesn’t get income from all possible countries, but maybe this can help you figure it out. This seems to be secret information as I can’t find anywhere that Amazon discloses their EINs.

Now, to my actual topic. If you aren’t incorporated and don’t want to go to the expense and trouble of creating an LLC, you would probably benefit from setting up a DBA. It stands for Doing Business As. If you use a pen name, you would obviously want to do business as That Name. If you’re using your own name, you can use Your Name Writing, or something more creative. Maybe—Your Name Books, Your Name Literature.

Why do you need a DBA? If you want a separate bank account for your writing, you need one to set up a DBA bank account. From there, it’s convenient to create a PayPal account for your pen name or DBA and connect it to the bank account. I find it helpful to be able to take payments to my pen name. Also to pay for conferences with my PayPal account in my pen name. In the past, things have gotten confused when an account for Real Name pays and Pen Name shows up and people say Pen Name isn’t registered. Too complicated!

What you need to know about this is that the rules are very different depending on what state you live in. For instance, when we lived in Texas, I needed to file, for $15 at my county clerk’s office. When we moved to Tennessee, all I had to do was go to the credit union and tell them I wanted an account for my DBA. (I recommend credit unions over banks. It’s much easier to get a small business account with no fees from them.)

This may help you find out what your state requires:

http://dbafilingonline.com/dba-by-state/

Here’s another one, but with limited state information:

http://www.legalzoom.com/sitemap-dba-state-requirements1.html

Good luck with your taxes this year!

(See http://makeminemystery.blogspot.com/2015/02/taxes-for-writers.html for my earlier tax post.)

Taxes for Writers

I posted this at Travels with Kaye last week, but I feel it's important for writers to know these things if they don't. So I'm repeating it here in hopes that more people will see it. If you're a writer who is wondering what to do about taxes, here are some excellent links to guide you through the jungle.

The biggest problem is the pesky hobby rule, often misunderstood by writers and CPAs alike. Some writers, even a lot of tax accountants, think the IRS hobby rule applies to writers. It doesn’t have to, if you’re serious about your writing.

To begin with, take a look at this IRS publication: http://www.irs.gov/irs/article/0,,id=186056,00.html

If you’re starting out as a full-time writer, you don’t have to declare income 3 of the last 5 years if you satisfy some requirements.

The important points for you, as a beginning writer (not making any money), from this article are:

• Does the time and effort put into the activity indicate an intention to make a profit?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

You can report losses on a Schedule C for quite a few years before the IRS will take a look at you. See this article, which elaborates on the above:

http://taxsolutionsforwriters.com/2014/02/16/a-special-provision-for-writers-in-the-tax-law/

This link gives some checkpoints to make sure you’re fulfilling the requirements:

http://writerinterrupted.com/2012/03/13/hobby-loss-interpretation-for-writers/

You can see that it’s important to be keeping records of submissions, classes, time spent, and to conduct writing as a business in every way you can. Also, of course, keep track of what you can deduct.

This article goes into exquisite detail: http://www.eclectics.com/articles/taxes.html

This one includes some forms to help you keep track if you don’t already have some that you like: http://www.artstaxinfo.com/writers.shtml

I hope this helps. Don’t lose out on loss deductions that you’re entitled to. And may you someday be declaring a profit! I did last year for the first time in 12 years. It was a small 3-figure profit, but maybe someday it’ll be more.

Small Business Saturday (& Taxes)

by Kaye George

I like the concept that’s being promoted this year. Friday is the day to camp out and burst through the doors of major merchandisers. The people who wrote the SBS ad campaign realize this, they’re not fighting that tradition, but they want you to consider patronizing small businesses the next day. (I didn't realize this concept started in 2010 by American Express. I would have thought some small business organization would have started it.)

Small businesses are good, right? Buy local!

If you’re a writer, you’re a small business, too. If you’re self-published or traditionally, you’re still a small business (unless you’re a big one and everybody in the world knows your name). Next month will be the end of your business year if you run on a calendar year. Some time between January and April, you’ll have to start getting your expenses ready for filing taxes.

There are, surprisingly, a few writers who don’t know the special rules that apply to them. Even seasoned tax consultants sometimes don’t know! So I’m here to tell you! (I recently posted a similar article in the Guppy newsletter, but feel it deserves all the audience it can get among writers.)

There is a well-known Hobby Rule that says you can't take deductions if you don't make a profit in 3 out of the past 5 years. This does NOT apply to writers. I've collected a few articles that shed light on this and I'd like to share them here.

The bottom line is that writers can take deductions for an indeterminate number of years, since even the IRS knows how hard it is to make money as an author. There ARE certain things you should do to prevent coming up short in case of an audit, however.

I'll mention that I'm not an authority. My tax experience is limited--I prepared taxes for H&R Block for a few years and don't have any degrees in accounting--but I do keep alert for parts of the tax code that affect me.

The source files I've collected are too long to include here. One file is 4 pages long, the other is 18 pages long. I'll give you the locations where I got them, though, in case you want to collect them together for yourself.

Here are the highlights.

http://writerinterrupted.com/2012/03/13/hobby-loss-interpretation-for-writers/

You can help your case by being professional about your writing: joining writers' organizations, spending time networking, keeping good records of how you spend your time, showing that you're attempting to get into publication by submitting and keeping records of that, taking classes to improve as a writer to demonstrate effort toward publication. You can even make money some years and not other years if you can show the above things to an auditor.

This article (http://www.eclectics.com/articles/taxes.html), called Authors and the Internal Revenue Code by Linda Lewis, goes into great detail and cites lots of IRS Section codes. It also enumerates the classifications for deductions. It's helpful to me to put these on a spreadsheet and keep track of them throughout the year so I can slap them onto my Schedule C when the time comes. OK, I won't tell you how many months I'm behind in this task, but I do have the spreadsheet and a folder full of receipts. There are cases in this article to illustrate right and wrong ways to go about being a writer.

One last link (http://www.artstaxinfo.com/writers.shtml) to an article by CPA Peter Jason Riley, goes over expenses in detail a little differently and has some PDF and Excel worksheets you might find useful.

Please look at the original articles I've given links to before you do your taxes next year if you've been unaware of these details. The life of a writer is hard enough--no need to make it harder by not taking your deductions.

And happy shopping at your local stores!

Get a Head Start - Cheap & Easy Tax Tips for 2009 by Christine Duncan

Since this post will be published the day after April 15th, I thought I would write about taxes. It's too late now to give you any tips for your 2008 filing but not too late to make life easier next year. And it doesn't have to take you a lot of time, money or trouble this year. Here's the deal.

I work as a tax preparer for one of those places you see advertised way too much on T.V. and I'm a bookkeeper. So I see folks come in all tax season long with their own businesses who don't have a clue what they made or spent. And believe it or not, if you write and are published, you have your own business. All you have to do is make 400.00 from writing for the IRS to want to hear about it from you.

But hey, you say, I spent a lot of money on the writing too! I hear you. But the IRS will want you to be able to prove it. And it is easy and cheap enough. How cheap? How about under ten bucks, is that cheap enough for you?

First off, get one of those free bank accounts. It doesn't have to be a business bank account. You can get one from your credit union or some bank close to you. Run all of your income and expenses out of it. In other words, don't just deposit the royalty check from your publisher there, but also that 60.00 bucks you made from selling books in the back of the room when you spoke at the Senior Center. And use those checks (or debit card) to pay all of your writing expenses.

If you have to loan yourself money--deposit it into that account with a note in the register to remind you at year end. Then you have a record of all your expenses.

Already opened the bank account? Then go to one of your favorite office supply stores.Buy one of those vehicle expense books. They usually run around 2.00. Put it in the car on the center console. Every time you go somewhere for your writing, record your mileage. Make sure you record this trip to the office supply store and the bank. While you're in the store, buy yourself one of those nifty accordion folders with sections. You need a place to store your receipts, like the receipt you're about to get. You don't need a big filing cabinet for this. If you don't feel like using an accordion file, just use an old 10 x 12 manila envelope. (I told you this was cheap.) But label the sections: office supplies, computers & equipment, advertising (oh yes you do--you have a website don't you? How about the Romantic Times ad?) Make other sections as needed.

Put this folder in your car trunk in that box where you store your extra books in case the bookstore runs out when you do a signing. Then when you make a purchase and throw your stuff in the trunk, make sure the receipt goes straight into your accordion file. That's it. You don't need a big accounting program. You have just made sure that you have a record of income and expenses for the year.

At the year's end, total the receipts (or have the person who does your taxes do it, but that will cost you.) and total the deposits in the bank account. Voila! You are ready to file a schedule C without much effort or expense. And then filing your 2009 taxes will be easy. Yeah, right!

Christine Duncan
Safe Beginnings, A fire, a murder, a battered woman's nightmare
Safe House, Life--and death--in a battered women's shelter.
In print soon from TrebleHeartBooks.com Rule of Three--3 writers, 3 countries--3 ways of doing things