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.