Taxes, Bookkeeping, and More
Donna Brennan interviews
CCWC faculty member, Larry Lawton
With a BA in Business Administration, over 25 years of experience as a corporate controller, and his own Accounting and Tax Services business preparing financial statements and income taxes for individuals, partnerships, and corporations, Larry Lawton knows what’s required to run a business. He can tell anyone, in any field, what they must do to be considered a business in the US. For writers, this is probably most important at tax time. If authors don’t treat their writing career like a business, it will be considered a hobby by the IRS, and they won’t be entitled to any writing-related tax deductions.
Larry is the director of finance, warehousing, and fulfillment at Cladach Publishing, so he has an intricate understanding of what’s needed for a successful writing business. He uses his extensive knowledge of business, taxes, and publishing to teach writers about the “Business Side of Writing.” In fact, the workshop he will teach at the May 14-17 Colorado Christian Writer’s Conference is on that very topic.
I caught up with Larry to ask him about his workshop and the benefits of learning the business side of writing.
Q: If I’m not self-publishing my work, do I really need to worry about treating my writing like a business?
A: You may receive other income besides royalties, such as revenue from the personal sale of your work, speaking stipends, seminars, and secondary rights. If you do not want to claim expenses that would offset the revenue, these income streams would be reported as miscellaneous taxable income. Find out more at the workshop.
Q: Writers like to be creative, and business can be so boring and complicated. Can’t I just push that aside and worry about it later?
A: Perhaps, but you won’t be worrying if you keep receipts for your writing related expenses and income in a log to hand over to your tax preparer or accountant at year end. If you don’t write them down, the possibility is greater that you may not remember.
Q: But what if I’m not published yet? Shouldn’t I wait until I actually earn something from my writing before I consider it a business?
A: Yes, however, you should keep track of actual out-of-pocket expenses that could be considered “start-up” costs that can be amortized (expensed over a period of time) once a business is established. There are, however, net income requirements to be obtained in order to be a business and not be classified as a “hobby.”
Q: To be considered a business, would I have to incorporate? What are my options? Will you explain those options to us at the conference?
A: There are various business entities which you will learn about at the workshop. We will be focusing on the Proprietorship.
Q: Will you spend a lot of time talking about taxes? Is there anything else involved in being a business?
A: We will be highlighting what would be considered allowable expenses to reduce taxable income. If you use a fictitious name for the business, there are certain Federal and State registration requirements that must be applied for. Find out at the workshop.
Q: What’s a business plan? How long or detailed does it have to be? Will you give us advice on how to write one?
A: There are four good reasons to have a business plan of some sort which we will discuss at the workshop.
Q: Do I really need to keep track of all my hours and all the places where I send my writing? Will you tell us ways to do this and fill us in on what details we should track?
A: As a matter of self-discipline, time management, and follow-up, you should track your submissions for various reasons and account for the related out-of-pocket expenses. Tax codes do not allow you to charge your time as an expense unless you are being paid for your time as earnings through payroll. The workshop will inform you of what written documentation is required to substantiate a tax expense.
Q: Are there additional benefits of tracking how much time we’re spending on different aspects of writing?
A: If you’re like most writers who are passionate about their subject matter, you spend a great deal of time on research, writing, re-writing, editing, obtaining references, sending queries and proposals, etc. Using time-management principles will allow you to be more efficient and effective in planning each day so you will have less stress in keeping personal, family, work, and social issues in line. You will be able to accomplish much more and see where you may need to adjust your priorities. Come to the workshop and receive a time management daily planning sheet and learn how to use it.
Q: What kind of bookkeeping records are needed for a business?
A: Record keeping can be kept on sheets of paper or in a booklet with single line written entries listing revenues and expenses. Some writers may have knowledge in using business software that uses double entry transactions. The software can generate income statements, balance sheets, invoices, etc. Come to the workshop to see examples of record keeping documentation.
Q: If I’m self-published and I don’t treat my writing like a business, what’s the worst that can happen to me?
A: As long as you report all your income from writing on your tax return, the worst is that you will pay Uncle Sam a portion of your income at your tax rate with no deduction for expenses. If you fail to report your income, you will be subject to tax plus penalties and interest.
Q: If I’m published through a traditional publisher and I don’t treat my writing like a business, what’s the worst that can happen to me?
A: You will receive a form 1099 for the royalties paid during the year. As long as you report all your income on your tax return, the worst is that you will pay Uncle Sam a portion of your income at your tax rate with no deduction for expenses. If you fail to report your income, you will be subject to tax plus penalties and interest.
Q: Are there any special business considerations for hybrid authors–those who choose both traditional and self-publishing?
A: An author receiving income from a traditional publisher will be including that income with the self-publishing income. Thus, I see no advantage in keeping two revenue streams as separate businesses. The business consideration is that the writer should have a business in which to claim the expense deductions. These business deduction expenses will be discussed at the workshop.
Thanks so much Larry and Donna. Writers, I encourage you to give priority to attending Larry’s workshop. Not only will you likely save some money, you’ll rest easier knowing you’re doing things the right way. One word of advice from my experience claiming my writing as a business for 35 years: Set up a separate checking account for your earnings and expenses. It will make doing taxes much easier. And if you’re selling your published books, be sure to get a sales tax license. The conference has a Colorado sales tax license and collects and pays the tax on sales at CCWC.