Taxes 101 for Authors – The Andy Zach Way

I don’t know about you, but I start my taxes in December, finish in January, and file in February. Yes, I know that’s early, but since I usually plan to get a refund, I want to get my money as soon as possible. Since this is my first year as an author, but my thirty-eighth year filing my own taxes (you do the math!) I thought I’d share what works for me as a course for authors: Taxes 101 For Authors.

Objections?

What??? You don’t care? You’re not an author? Well, do you pay taxes? If you do, you still might find this post useful. Otherwise, go read Zombie Turkeys!

You wonder why you should listen to the foremost paranormal animal author of comic urban fantasy, instead of say, your tax advisor? Good question! If you have a tax advisor, great! Listen to him or her. But, if you’re running on a shoestring budget, like me, and you’re cheap, like me, and want to do it yourself, then read on! Or maybe you’re the artistic type and you hate taxes and numbers.

No worry! What I will cover doesn’t involve numbers at all! It’s just the best practices I have found over thirty years of practice, plus four years as a Management Science major, plus three years of training for my MBA. Finally, plus one year as a published author. Plus, later on I give you a free spreadsheet to track your book numbers, the same one I use for Zombie Turkeys.

My Attitude Toward Taxes

Perhaps you view taxes and filing for taxes slightly worse than death. Here’s a different approach: treat it as a game, like Monopoly! You go from step to step on your tax form, make sure you fulfill all the requirements, and try to keep as much of your money as possible. If you have money coming back at the end, you win!

Taxes 101 For Authors

First of all, I’m assuming that you’re using IRS Form 1040 throughout, since you’re an author and you’re running a business. These steps also apply to the short form and the EZ form, but you’ll need less of this information. Just follow the IRS instructions for these shorter, simpler forms then review the steps below and pick up what you need.

Taxes 101 for Authors – Step 1: Get all your income documentation

This includes:

1. All your W-2 forms. These forms document your income. Everyone you work for must give you one of these by January 31st of the following year.
2. All your interest statements (IRS Form 1099-INT) from all the banks or credit unions where you had any money at any time during the year.
3. All your business income receipts for the year. You’re an author. You’ve sold books. Track every sale, the price, and the discount off retail.
4. All your dividend statements from all your stocks your received during the year. (IRS Form 1099-DIV) This may also include insurance companies and credit unions who sometimes give dividends to their depositors.
5. Any retirement payments from your IRA. (IRS Form 1099G) Yep, they’re counted as income, unless you’ve already paid taxes on them (Roth IRA).
6. Any unemployment payments you received during the year. This is illogical; why would one part of the government give you money and another take it away? But taxes have nothing to do with logic.
7. Your state income tax refund from the previous year. I know this sucks. But the Federal government taxes the tax refund as income.

Taxes 101 for Authors – Step 2: Get All Your Expenses and Gifts

This includes:

1. All your charitable contribution  money receipts
2. Any physical gifts receipts
3. Include all your business expenses. Get all your credit card statements, all your checking account withdrawals, all your Paypal statements. This is a good place to note that your business should have its own bank account, checking account, credit cards, and Paypal account. You might also want to go through your business emails looking for any reference to cash. Why devote so much effort? Every dollar of expense you find reduces your income and your taxes.
4. Don’t forget all your tax receipts. This includes all state and local income taxes, all sales taxes or all property taxes. The Federal Government allow you to pick one or the other as a deduction. Pick the larger amount.
5. Finally, collect all your medical expenses. If your a Corporation Sole, like I am, then your medical expenses count. Perhaps you’re an LLC or a corporation. In this case you should have recorded your business medical expenses. If this is confusing, skip it and talk to a tax advisor.

Taxes 101 for Authors – Step 3: Get a Good Tax Program

Now that you have all your documentation, use an online tax program like Turbo Tax or TaxAct and follow their instructions step by step until the end. I’ve used both Turbo Tax and Tax Act, so I know they’re good. I’m sure there are other good tax programs online. Do a search and check recommendations.

I had you get all the documentation first, because you produce that all year. You need to start at the beginning of the year and collect it all year. We have a simple file folder called “2016 Taxes” and put in documentation all year. Do it.

For my author business, I have email folders for expenses and revenue. I also have paper folders for each. I record all my expenses and book revenues in my Excel spreadsheet. If you’d like a copy, send me a request. I’ll send you a copy free.

You’re All Done! Except for . . .

Double and triple checking your numbers. I ensure that I’ve captured every expense and every piece of income. If you miss an expense, your taxes go up. If you miss an item of income, you can go to prison or be penalized for your missing income taxes, plus ten percent.

I go through each paper receipt, income or expense, twice. The second time I ensure the number is correctly entered in the tax program and if it is, I check the paper.

Electronically, I go through my business income and expenses and ensure the net income or loss on my spreadsheet matches that of the tax program. If not, I review the income and expense entries until I find the error.

Finally, I also count all my book copies so that my physical inventory matches my reported inventory. If it doesn’t, I review my sales and purchases until I find my error.

I just did this for Zombie Turkeys and I was tickled when the income/loss and book totals matched.

That’s all for Taxes 101 For Authors! This is Andy Zach, signing off.

LEGAL DISCLAIMER

“Any tax-related opinions in any part of this document or website (including any links) are not tax advice. The above is a general explanation of tax law and should not be relied upon for your individual circumstances. Tax advice cannot be provided on a general basis, and must be specifically tailored for each individual by his or her particular representative. Any user of this website should seek the advice of a competent, independent tax professional regarding that user’s particular circumstances.

In addition, any tax advice given herein (and in any attachments) is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (i) avoiding tax penalties or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed therein.”