Income Tax Basics for Authors

Today’s installment of “Managing the Business Side of Your Writing Career” takes a look at another business-related topic: income taxes.

Most authors hope to become full-time writers, supported entirely by income from sales of their works. However, many authors continue to work a “day job” in addition to writing, at least during the early years of their careers. 

Once an author begins receiving income from his or her writing, however, the author needs to be aware of special tax issues this income creates.

For those who already work as independent contractors, these issues should be familiar. However, authors whose previous work experience classified them only as “employees” will need to learn a new set of tax procedures applicable to their writing income.

In the U.S., writing income is generally reported on IRS Form 1099 (Miscellaneous Income).

U.S. residents (and people living abroad who pay taxes in the United States) who earn income from writing or publishing do not receive a W-2 from the publisher (or retailers like 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.

While authors should expect to receive 1099s each year, authors must still keep careful track of all writing income received. The author has a legal obligation to report (and pay taxes on) this income whether or not a 1099 or other tax form was received.

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 January, authors (and other self-employed people) must pay estimated taxes to the IRS and their state of residence based on the amount of self-employed/writing income earned during the previous calendar quarter.

If you fail to pay estimated taxes on time, or fail to pay enough, the IRS and/or state will assess a monetary penalty.

Don’t incur a penalty because you were unprepared! As soon as you sign a publishing contract or self-publish your first manuscript:

1. Get the necessary forms for estimated tax payments from the IRS and your state, and mark your calendar with the relevant payment dates. 

2. Find out what level of income is required to trigger estimated tax payments (state & federal), & track your writing income. Remember: you have to declare all writing income on your annual taxes, even if it doesn’t trigger estimated payments.

3. 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 tax payment comes due.

4. Don’t forget to document your deductions! Authors can often deduct certain writing and publishing-related costs, expenditures and expenses. Consult a tax advisor to learn which deductions you can (and cannot) legitimately claim. Be aware: the IRS has changed the rule that required “profits” in order for artistic endeavors to remain a job instead of a hobby. 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.

Please join me next week, when my Wednesday post will take a closer look at how to document your deductions, so you have the information available when tax time rolls around.