Writing is a Business

The Translight re-edit is coming along well. I am about 15% done and I’ve been making a lot of little changes. Although Translight is the first book in the Galactic Alliance series, it was actually written after Chroniech. Heather Zak, my cover artist, has sent me the art-only she used to make the Galactic Alliance covers. I plan on using them to redo the covers.

I’ve created a closed Facebook group named “Self-Publishing Authors” to promote discussion among people looking to self-publish and those who have already done so. This new group is dedicated to answering questions and passing on new ideas concerning self-publishing. Promoting your book is prohibited. Please consider joining if you are interested in or have experience with self-publishing.

The topic for this week  --  Writing is a business
Let me start out by saying that I am not a tax expert. Everything I am about to tell you has been learned from reading various books as well as the IRS publications. Believe it or not, the IRS publications are not at all that hard to read and they’re freely available from their website: http://www.irs.gov/

Unless you are writing for your own pleasure, or you never expect to profit from your writing, you should treat your writing activities as a business. You should do this even if you have not yet finished your first manuscript. Why? First, because when you do begin to make an income from writing, you are going to want to have some tax deductions to offset the taxes you are going to pay to the IRS. Secondly, why not start taking those tax deductions now?

If you write as a hobby and you’re not serious about earning a profit from writing, the IRS will not believe you have a valid business. Be very careful about this. If you are ever audited and the IRS concludes you write as a hobby, they can, and will, invalidate all of your past deductions. This is spelled out very clearly in IRS publication 587 (as well as others I’m sure). How are you to avoid this? Easy, keep reading.

As soon as you form your business, you should begin planning for tax time. One of the first things you should do is get yourself an EIN. This is an Employer Identification Number and it’s available instantly from the IRS through their website. To get one now, click here. You should use this number in place of your SSN for all business-related transactions. When you publish on Amazon, you can use your EIN in place of your Social Security Number. It will link back to your SSN and it keeps your SSN private. It also helps show that you are serious about treating your writing as a business.

One thing the government is very keen on is detailed and accurate documentation. No matter what type of business you create, you should keep anything and everything associated with it in a separate location. You should also start and maintain a business log. This is required (I believe) if you form an actual company (such as an LLC). The simplest, and most common, type of business is the self-proprietor. It requires nothing more than a declaration to establish. Keeping a logbook is one way of showing you are serious.

If you qualify for a home office deduction, then you can also claim mileage. One thing you will note when you file your taxes is the IRS does not seem to think a small business can utilize more than one vehicle. I have two cars. I have an Excel spreadsheet that I use to track the business-related mileage. It identifies the following: Which car I drove. Starting odometer reading. Ending odometer reading. Total miles driven. Purpose and if it the mileage recorded is one way or round trip. When tax time comes, I pick the vehicle I use the most and put that on the form. I treat both cars as if they were one. Having the detailed log backs me up if I ever get audited.

Do you use a computer exclusively for writing? The cost of that computer is a business expense. Do you buy books to help you become a better writer, attend conferences, drive to a writer’s group, or take writing classes? These are all valid business expenses as are the miles you put on your car to travel to and from them. A word of caution here. The IRS views writers as being able to conduct their business anywhere. This means that unless you have a home office and you claim one on your tax return, you cannot take any deductions for travel even if you travel out of State. A home office must follow some very specific rules and I will refer you to IRS publication 587 if you want to set one up. If you do, take a picture of it and file it away.

A self-published writer is more than just a writer. You are a writer, editor, proof-reader, publisher, marketer, and many other titles. You are very often the entire package. If you pay to have someone create a cover for your book, that’s an expense. If you pay to have your manuscript edited, write it off. If you use the internet to do research, publish your book, or even check your grammar with a program such as Grammarly, it’s a valid expense.

But, if you do not declare yourself a business, none of these expenses (and many more) can be deducted from your taxes. Are you worried about reporting a loss? Don’t be! The IRS realizes that most businesses will report a loss during its first few years. In fact, reporting a loss for up to five years is okay. But, if you report a loss year after year without showing any appreciable income from the business, it could trigger an audit and the IRS will scrutinize your records. If you’ve kept a detailed log, have all your receipts, and can prove you are actually writing a novel, then I would not worry.

There are other types of businesses you can form. One of the most popular is an LLC. Unless you believe you can be sued for what you write, I don’t believe this is a cost-effective path to follow. I should point out that an LLC will not protect you if you plagiarize someone else's work. Most writers will do fine to simply file as a sole proprietor. If you have a tax professional who does your taxes, have a talk with them. Carefully read the IRS publications. If you are really worried, consult a lawyer although that can be expensive.

There are a few other things you will want to do:
  • Open up a checking account specifically for business use. If you do pull funds from this account for personal use, transfer it to your personal account and use a memo to identify it as profit-taking.
  • Get or designate a credit card solely for use by the business.
  • Print business cards.

If you are serious about being a writer and you plan on making money at it, now is the time to declare yourself a business. As with all my posts, if you have any questions about anything I’ve said please feel free to write me.

Future Posts:
  • Establish your network -- Writing is a lonely job, but you will need access to a network of writer friends you can interface with and call on if you ever need help. Most writers are eager to help other writers out.
  • What NOT to do -- There are many mistakes a self-publishing author can make, especially if you are eager to get your book out into the world. I will try to list the mistakes to avoid.
  • You as an Author -- Writers are a strange bunch. We spend hours behind locked doors hunched over a keyboard or notepad working furiously to create a masterpiece. Once your book is available, you become a public figure. This post will include my advice on how to present yourself to the public and especially your readers.
  • Conventions, Awards, and Professional Organizations -- There are a lot of them out there. What are they for, what benefit does a writer get out of them, and which ones should you go to. Awards are great to strive for. But, are they really worth it? There are many professional organizations available to the self-published author. There are many good reasons to join them.
  • Protecting your hard work -- Copyrights and electronic backups are discussed.
As usual, if you have any suggestions for future posts, please let me know. If there is enough interest in one, I'll move it ahead in the schedule.