Tax Time

Mu husband and I filed our taxes last week. We were a little trepidatious because we’ve owed money for the past couple of years—but this year we’re getting a refund. Yay!

But that’s not what I wanted to blog about today. I wanted to mention a few of the extra hoops you get to jump through, tax-wise, when you’re a writer in the U.S. I’m neither an accountant nor a tax attorney (so don’t take this as professional advice), but I’ve been self-employed as an author or editor for most of the last decade, so I’ve got a good amount of personal experience jumping through those hoops.

Back when I was employed by someone else, I really only thought about taxes once a year when I had to file. The rest of the time, someone else took care of taxes for me. The money I owed the federal and state governments magically disappeared from my paychecks, and every April I filled out a couple of forms, checked figures on my W2s, and made sure everything squared. Not my favorite way to pass the time, but not too hard, either. And I usually got a refund.

As a self-employed author, I think about taxes a lot more. When I get a check from a client or one of my agents, no one withholds any taxes from it, and that means Uncle Sam and New York state both want to hear from me a lot more often than they used to: a grand total of five times a year. Besides filing in April, I have to keep track of what I earn and send in estimated tax payments four times a year: in April, June, September, and January (the final estimate payment for the previous year).

To file, we have to use form 1040 (the longest and most complex version of the 1040) and fill out Schedule C (Profit or Loss from Business), Schedule SE (to calculate our self-employment tax), and Form 8829 (Expenses for Business Use of Your Home), among others. Lots of paperwork.

Before I was self-employed, I had no idea what self-employment tax was. In a nutshell, it’s how self-employed people pay their share of Medicare and Social Security taxes. When you’re employed, you pay about 7.5% of your income into these programs, and your employer pays the same amount. When you’re self-employed, you pay the whole amount yourself: 15.3% of your income. I’m not complaining, because I think those are good programs, but it was certainly a shock the first time I had to pay it. (On the plus side, you can deduct half of this tax from your other federal income tax.)

So if you’re switching from being employed to being self-employed, keep these tips in mind:

  • Keep good records. Anyone who’s ever seen my office knows I’m not the most organized person around. But money is one thing I’ve made an effort to get organized about. I use a spreadsheet to track income and expenses, and I have a file for receipts.
  • Set up your own payroll deductions. Something new I’m trying is having a separate account for taxes. When I get a check, I deposit it into my main account and then transfer a percentage into my designated account for taxes. This  prevents me from thinking that I have more cash on hand than I really do.
  • Don’t be late. It’s never fun to send a big check to the government, and it’s even less fun when you have to do it four times a year. But there are penalties for being late, so it’s important to pay attention to due dates for those quarterly estimated payments.
  • Get help. Taxes for self-employed people are complicated. If you’ve never had income from self-employment before, consult a tax professional to get help filling out all those forms and to find out what you can and can’t deduct. It’s worth the money.
  • Get educated. Even before it’s time to file, talk to an accountant or tax preparer and get a list of the writing-related expenses you can deduct. There are many allowable expenses related to advertising and promotion, research, professional development, writing-related travel, and so on that you might not think to deduct. Of course, keep receipts and document everything.

Paying taxes is never much fun. But it’s a reminder that I’m really making a living as an author, and that does feel good.


About nancyholzner

6 responses to “Tax Time

  • Marianne

    I’ve decided there is NOTHING worse than the 1065 form (for LLC taxes). This is the first year I didn’t do my own taxes. I tried but GAH.

    I like the idea of setting up payroll deductions. It’s a good one. Also, keep your records in a spreadsheet (it’s easier than paper) or in accounting software — and keep them up to date! Time flies, and if you do it tomorrow, it’s going to be tax time when you realize you have a year’s worth of receipts to do something with.

    And I am SO glad it’s done for another year.

  • nancyholzner

    Definitely yes about the spreadsheet–much easier. I try to enter expenses as soon as they occur, like putting in money spent on postage as soon as I get home from the Post Office so I can file the receipt.

    I bet that the LLC form is horrendous! What complicates our return is that we own some apartments (they’re our retirement plan), and the paperwork for that is a nightmare, too. I’m with you about being glad it’s over for a year. (But I always thought it was kinda unfair that the first estimated payment for the current year is due on the same day that taxes for the previous year are due. I don’t THINK that’s what Eliot had in mind when he wrote “April is the cruelest month,” but it sure adds to the pain LOL.)

  • Suzanne Johnson

    Great post, Nancy. This year, for the first time, I’m having to keep up with book advances and agent fees, etc., and hadn’t even thought about filing quarterly. I also still have a “day job,” though, so it might be different. Anyway, lots to think about so thanks for posting on this!

  • nancyholzner

    That’s a good question, Suzanne. I’d check with a tax preparer. There were a couple of years when I had both income from an employer and income from self-employment, but that was a long time ago and I can’t remember now what I did in terms of quarterly payments. I still had to fill out all those extra schedules, but I think I’d set my withholding high enough, and my self-employment income was low enough, that withholding took care of all the taxes I owed.

  • Mary Win Connor

    As a freelance bookkeeper who used to be the office manager for a tax accountant I can attest to the fact that Nancy is right on all of this. The only difference for me is that I use accounting software (quickbooks) to track my income and expenses which makes it easier to do my taxes.

    The idea of a “tax savings account” is great. In essence it is the same as having your employer withhold for you. Another trick if your spouse has a job where taxes are withheld, have your spouse up his or her withholding. If you can afford it, it can make a big difference at tax time.

    • nancyholzner

      Hi Mary Win,

      I like that withholding trick — good advice. We’re both self-employed in my household so that never occurred to me. Thanks for suggesting it!

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