If you publish, you can't avoid this...

Income. It is taxable. The sooner you get your small-business ducks in a row, the better.

Self-publishers especially have to do the right steps in the right order, or your publishing dreams will stall.

I've consistently heard one piece of advice I'll share again: create a financial infrastructure separate from your personal finances. Register yourself as a sole proprietor/independent contractor. Get a bank account for your writing. This will make tax time tons easier.

It will also help ensure you pay the right taxes on time and avoid getting smacked with fines and fees, or being charged with tax evasion. You can't wait until next April to pay 2012 taxes on writing income, unless it's under a certain threshold (I believe $250 or under can be paid annually). Most taxing entities want you to pay tax on income quarterly at the minimum (some want it monthly) and will punish you if you don't. This is one of those places where "ignorance of the law does not excuse you."

Publishing with an ebook publisher or print-on-demand service, you will need to set up an account with them.

To do that, you need your bank account set up.

To do that, you might need a business license from your local municipality.

To do that, you might need to register your business with the state.

To do that, you WILL need to register for an EIN (employer identification number) from the federal government.

To do that, you will need to decide what kind of business entity you will be. If sole proprietor doing business under your own name, there's no special step here, other than to simply decide this. If you plan to set up your own press or publish under a pseudonym, you must register the name with your state. In Pennsylvania, the fee is $70 for a "doing business as" (DBA) license.

So, to put that in the correct order, do the following:

1. Chose your entity type-- as yourself or pick a business name. Research that the name isn't already registered.

2. Apply for your DBA license. (Skip if using your own name.) How long this process takes varies from state to state, as does the fee.

3. Register with the federal government for your EIN. You'll need an approved DBA name to do this. It is FREE and can be done online, with instant results.

4. Register with your state. You'll need your approved DBA and your EIN. In my state, this is process is free.

5. Register and/or obtain a license with your local municipality. Urban areas in particular are keen to collect business taxes. You will need your approved DBA, your EIN and your state ID number to do this. My municipality offers a lifetime or annual fee. I plan to do the smaller, annual fee until I have book income coming in.

6. Open a business bank account. You will need ALL OF THE ABOVE to do this. Most banks offer a variety of business accounts. Choose one that allows enough transactions that you won't have your income eaten away by bank fees. Keep track of how much "seed money" you initially invest to cover expenses before you begin bringing in income.

7. Set up a PayPal account for your business. You will need the business bank account to do this. This will enable you to sell autographed copies from your own site, for example. It also makes it easy to pay out-of-state vendors, such as a freelance editor.

8. Set up your royalty payment account with your service providers, be that the print-on-demand publisher, Smashwords, Amazon and other channels. Traditionally published would skip this step.

9. Pay your business expenses from your business bank account (you'll need to begin with seed money you invest). Keep receipts for everything. If you work from home, hang on to your utility bills for the year also. A portion of those are deductible. A tax professional can help you calculate how much.

10. Map out your tax-paying schedule and pay taxes on time, again, from your business bank account. Track your tax payments. Some state and local taxes paid can be deducted from your federal 1040. License fees definitely can be.

I procrastinated a bit on step five and realized I might have to schlep to City Hall to speed the process along. It's worth the hassle, especially since I can't move ahead with uploading the book until I can get paid, which, as you can see, is a few steps past step 5. :-)

On a personal note...
Those who follow me on Facebook heard about my husband's bike accident. Someone opened a car door into him and he flipped over the door. Miraculously his injuries were not catastrophic--severe whiplash, a sprained finger, five stitches for one deep gash, and lots of bruising. No broken bones at all. I'm home this week taking care of him and learning ebook formatting, plus the small business hoop-jumping. He's steadily getting more mobility and starts physical therapy for his neck soon. I'm hopeful that in another week, he'll be able to turn his head enough to drive again.

What part of this process surprised you? Which steps seem easiest or hardest?

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Making money writing

Yes, writing can be creative and fun, but at some point when your work goes into print, it will become something more--a business. With income. Expenses. All that jazz.

I don't see too many writers talking about the need to get your head out of the sand when it comes to treating your writing like a business. I guess it's because many creative people tend to get a glazed look when you mention the T word. Yeah, I mean taxes.

You might think you can jettison this worry onto someone who cares about this stuff--like your accountant. You can't. Not entirely. There are some things only YOU can do. And if you want to avoid a whole lot of headaches and stress, it honestly pays to educate yourself a little about this business-money-tax stuff.

Last week I attended an adult education small business tax workshop just to pick up some of the basics. Now that my head-cold fog is beginning to lift, I thought I'd share a little of what I've learned.

Business or hobby?

One of the first things to consider is whether you believe you will actually bring in some real income from your venture. Having substantial start-up costs and taking a loss is normal for the first few years. But if you plan to deduct all of your writing expenses, you need to post a profit within a few years, or the IRS considers your writing efforts a hobby.

Are you agented and out on submission? There's a good chance you could land a book deal, and with it comes income you will owe taxes on. Take the time now to get all your financial ducks in a row to minimize your tax liability. By that I mean register yourself as a business (likely a sole proprietorship), and track your deductible expenses. There are LOTS--from web design to business cards to your home office utilities. Even if you plan to use an accountant, you will need to keep records of your expenses. The teacher recommended the US Small Business Administration site (http://www.sba.gov/) as a great resource for getting started.

Ditto if you plan to self-publish or to sell short pieces to paying markets (and make more than $250 annually doing so).

If you sell stories or articles and only receive token payments, that's hobby income. The kinds of things you can deduct as hobby expenses are explained here: http://www.irs.gov/publications/p17/ch28.html. Note that you can't deduct losses (expenses that are over and above than what you got paid), you can only claim expenses up to the amount you made as hobby income. Tracking hobby expenses and income is a great way to get up to speed before you land a book deal, so do seriously consider doing some magazine work. Seriously. The writing credits and networking are some additional benefits.

First steps

~Remove your fingers from your ears and stop singing "La-la-la."

~Educate yourself about the rules. You must deal with three taxing entities: the federal government, your state government and your local government. The laws may have some overlaps, and may have some significant differences. An adult education class is helpful, and your local chamber of commerce and the SBA are also great resources.

~Apply for a federal EIN (employer ID number), for free, at the IRS site: http://www.irs.gov/businesses/small/article/0,,id=102767,00.html. You must have one to open a bank account that you dedicate to your writing income and expenses. It's really best to do this--keep your writing business as its own entity. It's much, much easier to track what comes in and goes out when it's not mixed in with your personal finances. You'll also need and EIN to deduct the cost of some services you hire out for, like editing.

Self-publishers take note: if you plan to set up your own press, WAIT to apply for an EIN until after you have registered your press name that you will be "doing business as." More information about is available from the SBA here: http://www.sba.gov/content/register-your-fictitious-or-doing-business-dba-name/.

~Apply for a small business license as required by your state or local government. The SBA has all the needed state links: http://www.sba.gov/content/business-licenses-and-permits. My municipality requires a license for any kind of business, so be sure to check in with your local government to see what their regulations are. Your local chamber of commerce may be able to help with this step. Don't be shy, give them a call if your local regulations are difficult to find.

~Open your checking account, using your EIN as the ID number rather than your SSN. Use it for all your business expenses: your web designer, your caterer for the launch party, etc. Deposit royalty checks here and link it to your paypal or Amazon account. This step will save you a ton of headaches!

What aspects of writing-as-business surprise you? Intimidate you? Was this post helpful? What else would you like to know?

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The yet-unhung shingle

I'm contemplating some shifts in the coming year. A big one is whether I will begin to take on some freelance editing projects.

I've been hesitant to do this for one reason. Taxes. I live in a city that deals with self-employment income differently than other kinds of wages. It's a biggish step to do more than an occasional freelance job. There's an upfront cost to register any business venture in Philadelphia--a somewhat steep one.

Happily, I found an inexpensive two-hour workshop on small business taxes in the city. So I hope that once I have a handle on what's involved, I can make an educated decision.

Meanwhile, I continue to receive Editor-on-Call questions. Here's the latest:

Dear Editor-on-Call,

I said to my mother, "Because I am me." She corrected me and felt I should have said, "Because I am I." Who's right here?

Sincerely,
I gotta be me
(aka Jessica Dimuzio, author of Bark, Bark, Bark for my Park)

Dear Gotta Be,

I'd say it depends on context. The rule is that the verb "to be" acts like an equal sign and the second pronoun should be subjective (I, she, he, they), not objective (me, her, him, them).

BUT it sounds like a pretentious over-correction to say "I am I." The grammar sites I checked all had ongoing arguments. "I am me" is using the word "me" to refer to one's ego. Or at least that's how grammarians today think of the phrase. (Whether one should think of one's ego as some kind of discrete entity is a larger philosophical issue that's more my husband's area of expertise as a philosophy professor, but I digress....)

The fact is, we don't have a singular entity making pronouncements on the purity of English like the Académie Française in France. English's strength is its flexibility and skill at keeping up with the times. This is one of those cases where the rules are in flux and what was once considered correct is passing out of ordinary use.

She is right to the letter of the law; you are right to the current standard of speech patterns.

Any of you self-employed? How big a headache are tax issues? Which of the sentences Jessica mentioned sounds best to you? Do we need a guardian of pure English?

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Are you prepared?

It's tax season and this year I had the distinctly frightening experience of doing a Schedule C for my husband. See, he got paid for writing a chapter in a book published in 2010 by Wiley, The Ultimate Harry Potter and Philosophy: Hogwarts for Muggles. Along with the check came a 1099-MISC and a lot of complication, because book royalties are considered self-employment income. If I manage to sell some of my poetry or short stories this year, I'll be in the same boat next tax season.

So here's my question: Are you taking steps to treat your writing like a business?

If you hope to make a little money from your writing this year--whether from magazines or anthology publishers, or better yet, a book deal, you need to begin keeping good financial records NOW. I'd argue that if you are pouring resources into writing, you SHOULD try to make at least a little income from it. Why? As far as I can tell, the IRS requires that you have some income in order to deduct expenses.** Chances are, you are racking up quite a few. What kind of expenses should you track? Here's a starter list:

Advertising expenses
Business cards, stationery, bookmarks and other items to used promote your writing are deductible--keep receipts! Costs associated with maintaining a website and blog, such as paying for server space and a domain name would fall under this category (design is a "professional service," see below).

Legal and professional services
Keep track of what you pay others to help you improve your writing or run your "writing business"--a professional editor, a proofreader, a web designer, an accountant, etc.

Equipment costs
Big ticket equipment purchases like your computer and printer can be deducted over a period of time using a method the IRS calls "depreciation."

Office expenses
The usual materials writers run through--paper, ink, pens, staples, whiteboards, sticky notes, postage--are deductible business expenses. Keep receipts!

Utilities
If you work from home, a portion of your home utility costs can be deducted; you may need an accountant to calculate this correctly, so keep copies of all utility bills.

Travel
Attending conferences to network and skill-build would be considered business expenses. Travel costs associated with book signings and school visits most definitely are. A portion of your expenses including mileage, tolls, parking, hotel costs, meals can be deducted. Be sure you're keeping good records and documentation of what you spend.

I believe that conference fees can also be deducted, but I haven't found definitive advice on where you report this particular "professional development" expense. An accountant could tell you. Just hang on to your receipt.

Other expenses
Reference and craft books to build your skills are likewise deductible, so keep receipts!

Child care
If you put your kids or a disabled dependent in daycare, after school care or elder care so that you can write, you might be able to take the child and dependent care credit on your 1040. Again, you need to have some income from your writing, or the daycare is really just a convenience to you as far as the IRS is concerned, rather than an expense so that you can work.

A caveat
Remember that you won't get in trouble for not deducting expenses, only for not reporting income. But if you spend more than you make, your tax documentation should reflect that, right? Keeping good records may involve some work, but it can save you big money come tax time.

**BIG disclaimer: I am not a tax professional. The above post contains general pointers on record keeping and should not be construed as professional tax advice. Seek help from a tax professional to determine which expenses are legally deductible.

Are you tracking your writing expenses? Will you consider doing so now?

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