Disclaimer: Midnight Publishing’s staff are not attorneys—these tips are general rules of thumb, but we always advise that you contact a legal professional for any and all tax and legal needs.
Taxes are the bane of many a business owner’s existence, and with the ease of self-publishing nowadays, many indie authors are left scratching their heads when April 15th comes around. What so many self-published authors may have forgotten, either because of the payment process (Amazon distributes earned funds three months after a book is first published, and once a month afterwards) or due to writing’s view as a “hobby,” is that publishing is a business. And as a self-published author, you are a business owner—which means you may be taxed on the revenue made from selling your books.
Tax tips for self-published authors:
Keep all receipts.
When tax time comes, home offices and other purchases (laptops, paper, ink, trips to author conferences) can be deducted as business expenses—but in the case of an audit, proof of these purchases must be available.
Deduct Expenses Appropriately
According to Peter Frank (a partner at CPA firm Cornick, Garber & Sandler, LLP in NYC) in this Publisher’s Weekly article, the IRS defines eligible tax write-offs as “necessary” and “ordinary.” Unfortunately, there isn’t a set “list” regarding items that fit into these two boxes, but it’s assumed that sticking closely to obvious work expenses is the safest way to go. According to Frank, such examples of potential deductions include your internet connection (for research and utilizing your online retailers), subscriptions to media resources, a website’s domain name, web hosting costs, and any editing, marketing or cover design services you pay for. “Traveling extensively,” meals and even movies/shows for research might make the cut, but tread carefully and consult a professional before inclusion.
When using third-party retailers for your books (both e-book or paperback), the retailer handles the sales tax issue (ever notice how the price of an e-book changes a little at checkout? That’s the sales tax being added, and feel thankful that Amazon is handling it so you don’t have to!). However, if you’re ordering bulk shipments of your paperbacks to sell at conventions and book signings, then the proper tax paperwork needs to be submitted to your state’s revenue department—and at that point, consider establishing your authorship as a legitimate business. (For more information on tax paperwork for small businesses, called a Schedule C or Schedule C-EZ, click here.)
Hobby Versus Business
This is determined by your intent regarding a writing career. If you’re planning to make a living off your books, that can be counted as a “business”—even if you report losses for several years. However, once five or more years are reported with losses, the IRS may determine that your writing is simply a hobby, thus disallowing you from claiming those aforementioned deductions. To keep this from happening, be sure to have a separate checking account and credit card for business expenses, attend conferences and other “business enhancing/networking” activities, and keep logs of miles driven, phone bills paid, and other travel expenses.
Taxes aren’t a fun topic for anyone (except maybe accountants, but even then we aren’t too sure), but with these tips and a professional’s assistance, you can await that day in April with a lighter heart, and spend time on what’s most important—writing another book.
Resources and Citations:
“Indie Authors Facing the 2015 Tax Season” by Ron Callari, BookWorks
“Tax Strategy 101 for Indie Authors” by Allison Schiff, Publisher’s Weekly
“Writers: It’s Time to Think About Taxes” by Michael N. Marcus, The Book Designer
“Tax Advice for Writers” by Bonnie Lee, Writer’s Digest
State of Arizona Department of Revenue
Arizona Commerce Authority’s Small Business Services