If you pay taxes, you're successful.
Updated: Mar 1
The current tax season in the USA is a reminder for all of us: Writing is a business as soon as we earn that first dollar. And preparing taxes is a good annual overview of whether we are successful.
Carmen Amato, a savvy author who sells lots of books, sent me a recent email suggesting I write something about that. She had just finished gathering all the necessary documents for her tax returns, and she used the annual task to review how much she spent, what worked, and where she got the most “bang for her buck.”
The process for her 2021 taxes helped her realize that nearly half all her expenses were for a paid promo site and for hiring a company to improve her website. Other big expenses were a blog tour and sponsorship of a women’s literary blog. In hindsight, she questions whether those were the best ways to spend her money.
For 2022, she wants to reduce her expenses to no more than 40 percent of her total income from writing. That’s consistent with the business school maxim for increasing profits: Either reduce expenses or increase income.
It would be interesting to know the major types of expenses for other authors and the ratio of expenses to income so we can learn from each other. Just post a comment or send me an email.
My largest recurring expenses for 2021 were website hosting and related software, plus nonrecurring expenses for Facebook ads that produced disappointing results. My ratio is totally out of whack because I don't have much royalty income from my backlist of books.
Paying taxes is another part of the writing business. Many people don’t like to pay taxes, including writers. Some writers say it's stupid to pay taxes on cash sales of books. For me, paying taxes means I earned income from writing and that means I’m successful. Not stupid.
When I self-published my 2011 book with true tales about US citizens living on the Baja peninsula, I didn’t worry about expenses and income and paying taxes. I just ordered boxes of print-on-demand paperbacks from Amazon, sold them a few at a time, and pocketed the cash. I can't remember if the scant online sales for the paperback triggered a 1099 statement from Amazon.
Back then, almost everybody on the Baja peninsula preferred untraceable cash transactions without giving receipts. Office supply stores. Restaurants. Motels and hotels. The small book festivals where I paid for tables to sell books. And gift shops that stocked the book on consignment. So, I didn't have receipts for many expenses associated with publishing and promoting my book.
My personal tax accountant back in Maryland took one look at what I was doing and slapped some sense into me. For the next year, I created a sole proprietor business entity and registered it with the IRS. Then I sold a little stock and used the money to open a business bank account and get a business credit card to help keep everything separate from personal finances.
I began contacting independent bookstores and libraries from California to Maryland, participating in more book festivals along the way, and attending writers’ conferences. With new-found religion, I stuffed paper receipts into a manila envelope inside my briefcase and used Excel to keep track of income and expenses.
The expenses were legitimate but they exceeded income from my sales. That helped offset capital gains from selling stocks but the IRS audited me. Fortunately, I had all the documentation backed up by the annual end-of-year printout from my bank and credit card.
Since then, I’ve learned more about the business side of writing from attorney Helen Sedwick in her great book titled Self-Publisher's Legal Handbook: The Step-by-Step Guide to the Legal Issues of Self-Publishing. I recommend it to every writer who self-publishes books or is thinking about it.
Recently, I've learned even more by following fellow author and CPA Diane Kennedy, who posts frequent tax advice on LinkedIn. One of her most recent posts explained why some expenses are deductible only if you have a business entity.
Hey, I don’t mind paying taxes. The Amazon sales rankings may not show my modest success, and I’ll never be in the same league as Amato and Kennedy and many other authors I know. But the tax returns show I’m successful.
Personal perspective: Like many other indie authors with an aging backlist of only a few published books, my income has decreased every year. With less income, I’ve also decreased expenses:
· I quit hustling to market paperbacks to bookstores, libraries, or consignment gift shops. Paying for the inventory (Cost of Goods Sold, the IRS calls it) and the travel expenses were not cost-efficient for me. Besides, many of the libraries wanted a gift copy.
· I haven’t been to a book festival or a writers’ conference since 2018. They are great for networking, but the time and expense are too much for me.
· I canceled a separate cell phone account and threw away my business cards.
· My stylish laptop briefcase is in a closet. I don’t need to sling it over my shoulder, ready to pull out my laptop and dazzle people during meetings.
· I gave away my printer-copier-scanner to a local high school (but didn’t claim a charitable deduction). Using Office Depot is cheaper than buying paper and ink.
Reducing my writing expenses also simplified my record keeping and has made filing my taxes easier. Last year, I started using my iPhone to track everything with the app from Mint, which is part of the Intuit suite of financial applications. That makes it easy to use Intuit’s TurboTax to prepare and file my taxes electronically.
I still have the business checking account and credit card. I still receive an annual 1099 statement from Amazon (which sends a duplicate to the IRS). You know the old saying that death and taxes are the two things you cannot avoid...
Oh, by the way, my electronic tax returns for 2021 have been accepted by the IRS and my home state. Hallelujah!