Most people in the United States work as employees of someone else. This is true of writers also – many of us do something other than write full time.
For those of us who qualify as self-employed, business owners, or independent contractors of one type or another, the purpose of this post is probably already clear. For those who work as employees, however, a writing career means it’s time to think outside the W-2.
U.S. residents (and citizens living abroad who pay taxes in the United States) who earn income from writing or publishing will not receive a W-2 from the publisher (or from Amazon or Smashwords, in the case of independently-published authors). Instead, an author receives Form 1099 – a report of income other than wages, salaries or tips.
People who receive Form 1099 are considered self-employed or independent contractors– and people who fall into those categories must pay quarterly estimated taxes during the year. Four times a year, in April, June, September and December, authors and other self-employed people must estimate the taxes due to the IRS and their state of residence (assuming the state has an individual income tax – some don’t) and send that amount of money to the IRS and state along with appropriate estimated tax forms.
If you fail to pay estimated taxes on time, or fail to pay enough, the IRS and/or state will assess a monetary penalty.
The obligation to pay estimated taxes often comes as a shock to authors who previously received only wages and had an employer withholding taxes from his or her checks.
Don’t incur a penalty because you were unprepared! As soon as you (a) sign a publishing contract or (b) self-publish your first manuscript:
1. Find out what you need to know about paying estimated taxes. Get the necessary forms and mark your calendar.
2. Set aside a portion of every royalty check or distribution to cover your tax obligations – don’t anticipate having enough left over from then-current income when the payment comes due.
3. Don’t forget to document your deductions! Authors may be able to deduct certain costs, expenditures and expenses associated with writing and publication. Consult a tax advisor to learn more, and don’t forget to save receipts to document your deductions thoroughly.
I’m not a tax advisor, and this post should not be taken as tax advice. Consult a qualified accountant or other tax advisor before making decisions on tax issues.