Monday afternoon I had a sobering talk with a CPA about record-keeping for next year’s taxes. As an independent author I fall into the category of “Sole Proprietor.” Basically this means that, as a self-employed person, I am responsible for paying social security and Medicare taxes out of my book earnings, in addiiton to any income taxes owed. Wow!
Until I actually turn a profit, some of my expenses can be written off as losses, but the IRS wants definite proof that I’m in the serious business of writing and not just publishing books as a hobby. What kind of proof? I asked the tax accountant. Separating my business bank account from my personal accounts is a start, I was told. Something as simple as having and using a business card is another. Good! I qualify on both.
Next, I was told that keeping a current, continuous log of expenses is vitally important. Oops! Although I have a box stuffed full of receipts, I need to make a detailed list of all my appearances this fall – including mileage, motels, food expenses, etc. Royalty checks should be copied. Expense files should be set up (e.g. office supplies, research materials). My office needs to be a space dedicated solely to my work in order to be a legitimate deduction. Should the IRS come calling, I must be able to show them my office and put my hands on any receipts they request. By keeping good, complete records I will also help my tax preparer in 2012.
If and when I start making money, I”ll have to file quarterly estimated payments toward the annual taxes due – on a 1040ES form. Whew! I’m glad I had that little talk with a tax professional! When I started writing Faces in the Fire, I gave no thought to the busines end of the process. Now, I’ve decided that paying a CPA for his services will be a wise and necessary step. If you, too, are a published author, don’t forget to do your own homework!