2016-01-31

Self-Publishing: Tax Time

Update
This has been a good week for writing. Dragonverse Origins now stands at 74,436 words. If I have another week like this one, the book will be done by next week. Even though this is the first draft, I'm going to send it to my content editor as soon as I'm done so he can tear it apart. I would rather do major editing at this stage than after I made a couple of editing passes. While I wait for his review, I'll be working on a couple of other side projects: I need to update my web page to show my new Galactic Alliance covers; I need to update the first two books in the Dragonverse series; I want to put together a complete linked summary of all my self-publishing posts; and I need to start work on Peacekeeper 3. I think I have enough to keep me busy for quite awhile!

I will be giving a self-publishing presentation at the NorthEast Ohio Romance Writers Of America (NEORWA) meeting next Saturday, February 6th. I'm looking forward to this event. If you live near Parma, please join us. The meeting will be held at the Parma public library starting at 10:00. I begin my presentation around 10:30.

Tax Time
Tax time is upon us and it's time for my annual reminders concerning taxes. If you've been following my advice, you have a great start on filing your taxes. The Amazon 1099's should be going out soon and when they arrive you need to pay particular attention to them. Smashwords tax forms are already available on their website.

So what's so special about the Amazon 1099's? If you have had any overseas sales, you will have to compare the total of all your Amazon 1099's with the total of all the money Amazon actually deposited into your bank account. If you keep good records, this should be easy. If you have sales outside the United States (and you're in the United States) you will discover that the 1099's add up to more than what was actually deposited. The first time this happened to me I thought Amazon had made a mistake. It took a few back and forth emails to sort it out but the difference is caused by the foreign currency conversion fee you are charged.

I used to think this was a problem with how Amazon reported my income. But, after a few more hard to decrypt emails from Amazon, I don't think the problem is entirely their fault. Their overseas units will deposit the money into my bank account but this deposit is in the local currency. My bank (or theirs) will do the conversion. Overall, it amounts to about 3.3% of the deposit. If you carefully read the Amazon contract, you will find a clause that says you will be charged a fee for this conversion. It does not specify what this fee is because Amazon does not control it.

So why is this important? Why not just take the numbers from the 1099's and plug them into the tax form? Because that foreign currency conversion fee is a business expense. Do the math and take the expense. If you are ever audited, just pull out the 1099's and a copy of your end-of-year report and show them the difference. You will never see this value reported to you from Amazon nor from the bank. You must calculate it on your own.

There are a whole list of other expenses you can claim as well as long as you are treating your writing as a business. These include but are not limited to:

  • Writing supplies (computers, pens, pencils, paper, ink, printers, etc.).
  • Writing related magazine subscriptions.
  • Cost of ordering books.
  • A percentage of your internet cost if you share it with the rest of your home.
  • Meals while you are away from you home office.
  • Mileage that is associated with your writing business.
  • Professional organization membership fees.
  • Travel expenses to conventions and other writing-related activities.
  • Office furniture.
  • Fees paid to editors, artists, and other individuals for writing-related services.
  • Advertizing expenses.
  • Cost of printing business cards.
Some of the above will only apply if you have a home office. This is an area specifically set aside and used exclusively for writing. It does not have to be a single room -- it can be a part of a room. It can even be a small building outside your home (but be careful, there are special things the IRS will need concerning such an office). You can track your household expenses and deduct the percentage of the size of your office from those expenses or you can use a standard deduction calculation based on the size of the office. It's much easier for me to use the standard deduction calculation.

Mileage can be claimed if you have a home office. If you don't have one, then the IRS will most likely disallow mileage because a writer can write from anywhere. If you own more than two cars and you use both for writing activities, you're going to have to treat both cars as if they are one. The tax forms only have room for a single vehicle. I have two and I use them both. I combine the mileage from both vehicles and pretend as if they are from a single car. You can also use this method if you sell a car and buy another one. Just make sure you have a detailed mileage log for each vehicle and you track the total mileage driven over the year for every vehicle.

Many people have an accountant who does their taxes at the end of the year. The fee for this is a business expense. If you have someone else do your taxes, make sure you examine the final product very closely. I've found errors on ones I've had done and had to go back and correct them. I find that it's much easier for me to do my own taxes because I know what needs to go into the calculations.

If you have any questions about what can and cannot be deducted, go to the IRS website and read the following IRS documents. They're actually not that hard to understand if you carefully read them.
  • Publication 587: Business use of your home.
  • Publication 550: Investment Income and Expenses
  • Publication 535: Business expenses
  • Publication 583: Starting a business and keeping records
I know you would rather spend your time writing, but if you want to survive an IRS audit, please make sure you know what is going on with your taxes. Handing your records over to someone else and trusting them to do it all correctly can be a costly mistake. It's your money, it's your business -- make sure you make it your responsibility to at least understand what every line on the tax form means.

Next week I'll talk about how my presentation went at the NEORWOA meeting as well as some things I've heard about concerning the publishing industry.