Are you ready to file taxes?

Alexa Bigwarfe

Tax season is upon us – the Americans on the list at least! For everyone else, these tips may or may not apply – definitely do your research for the laws in your own country.

I strongly advise as your business grows, you seek out and work with a CPA. Every year the tax codes change, and a professional can help you ensure you’re getting all the deductions you should.

The One Rule That Makes Everything Easier

Keep your business and personal finances completely separate.

Open a dedicated business checking account. Get a business credit card used exclusively for author expenses. This one habit will save you hours every tax season because you’ll never have to sort through personal charges mixed with professional ones.

It also makes you look more credible to the IRS. A commingled account is a common audit flag for sole proprietors.

We’d like to avoid that at all costs.

Bookkeeping and tax season is my least favorite part of being a business owner.  As my business grew, I hired a bookkeeper and CPA for filing my taxes, but the first few years, I did it all on my own.

Disclaimer: I am not a trained tax professional nor am I an accountant, so please make sure you are consulting with a professional. These tips are based on what I have learned. And below, I’ve got a recording from a few year’s ago for our annual conference, in which Melissa Whaley, a bookkeeper, shared her professional expertise. Laws change, but the basics stay the same.

First – how do you figure out your profit?

This part is the easiest.

Profit = Revenue (be it from royalties, consulting, sales of courses, book sales at events, etc.) – expenses.

You may be in the negative for the first few years. In fact, it’s quite likely that you’ve spent more your first couple of years than you’ve earned. You get three years to file “in the red” (ie, negative because expenses = more than revenue) before the IRS deems your business to be a hobby, not a business.

Even if you’re not making money yet, these expenses can help bring down your overall tax burden. But if you hit year 4 and you’re still expensing more than you’re earning, you might not want to claim everything.

What can I write off as an expense?

Did you know that almost ANYTHING related to your author business can be expensed?

Some examples:

• Editing
• Conferences (to include airfare, hotel) – to include virtual conferences like ​The Women in Publishing Summit​ 🙂
• All marketing expenses
• Book orders – either of your own or of other people’s to do genre research, etc
• Coaching programs, training, etc
• Office supplies
• Office space
• Internet and phone
• Website fees, domain purchases
• All tech tools you buy to support your business (think tools like ​ProWritingAid​, ​PublisherRocket​, ​Autocrit​, ​PubSite​, etc.)
• Stickers, flyers, swag – anything related to marketing expenses
• Marketing expenses – ads, companies, promo tours
• ETC.

One final tip – in the beginning, you can use a tax software, like TurboTax to help you file your Schedule C. But it’s a lot easier if you’ve been keeping track of your expenses.

Next year – (or starting now!) – take a day at the end of the month to put everything in a spreadsheet and categorize the expense type, reconcile your accounts, and pay bills. It will save you so much time next year in tax prep! And make sure you’ve got a separate bank account and credit card for all of your business income and expenses, so you’re not wading through personal expenses intermingled with business expenses.

Hope this helps!

*This post contains affiliate links.

Learn From a Professional: Interview With Bookkeeper Melissa Whaley

Several years ago at our annual conference, we sat down with Melissa Whaley, a professional bookkeeper, to walk authors through the practical side of managing their business finances. She has worked with creative entrepreneurs for years and understands the unique financial landscape indie authors navigate.

In this recording, Melissa covers:

• How to categorize expenses properly
• When to hire a bookkeeper vs. doing it yourself
• Red flags that can trigger IRS scrutiny
• How to handle income from multiple revenue streams
• Tips for authors who also have a full-time day job

Note: Tax laws change over time, and this recording reflects the information available at the time it was filmed. Always verify current rules with a qualified professional.