Taxes. The word alone can send shivers down your spine. After all, you chose the writer’s life to get lost in stories, not numbers. But as much as we’d all like to bury our heads in our books, tax season comes around every year, and with it, the need to navigate the often confusing world of deductions.
Luckily, it doesn’t have to be as overwhelming as it seems.
In a recent Speaker Series, we spoke with Ashley Guion, a seasoned CPA who’s walked the tightrope between numbers and novels herself. As both a tax professional and an author, Ashley is uniquely qualified to help us make sense of our tax responsibilities. In this post, we’ll break down her advice, ensuring that when tax season rolls around, you can confidently face those forms without breaking a sweat—or the bank.
One of the most important and effective steps you can take to legitimize your author business in the eyes of the IRS is separating your business and personal expenses. Open a dedicated bank account for your author royalties, book sales, and expenses. Not only will this simplify your record-keeping, but it will also help ensure that you don’t miss out on crucial deductions. As Ashley says, “No one remembers what that $36 Amazon purchase was for in January when they’re doing their taxes the following year.”
Maintaining clear financial records will not only make tax time easier but also provide a clearer picture of your business’s financial health throughout the year.
Authors, especially self-published ones, can take advantage of a variety of deductions. Here are some key categories to keep in mind:
You might have heard of the “three out of five” rule, which suggests that if your business doesn’t turn a profit in at least three out of five years, the IRS may consider it a hobby rather than a business. But here’s the truth: the IRS looks at a lot more than just profits when determining if your author work is a business or a hobby. They also consider factors like how much time you spend writing, whether you have a business plan, and if you’re actively seeking ways to improve your profitability.
In other words, don’t panic if you’re not making six figures yet. Focus on growing your writing career with intention, and keep good records to show you’re treating it as a legitimate business.
Many authors work from home, and the home office deduction can be a valuable way to lower your tax burden. To qualify, the space you claim must be used exclusively for your business. For example, if you have a dedicated office or writing room, you can claim a percentage of your rent or mortgage, utilities, and other household expenses.
To calculate the deduction, determine the square footage of your office in relation to the total square footage of your home. Keep in mind that if your office also doubles as a guest room or a personal space, it won’t qualify.
If writing is your full-time gig and you’re self-employed, you can also deduct the cost of your health insurance premiums, as long as you aren’t eligible for an employer-sponsored plan through a spouse or other job. Additionally, self-employed authors can contribute to SEP IRAs or Solo 401(k)s, which allow you to save for retirement while also reducing your taxable income.
When it comes to managing your income and expenses, automation is your friend. Tools like QuickBooks Online, Xero, and others can help you categorize transactions, track income and expenses, and generate reports for tax time. However, if you’re comfortable with a simple Excel spreadsheet or even a manual tracker, that’s perfectly fine—just be consistent. The key is to keep up with your bookkeeping throughout the year, so you aren’t scrambling come April.
When it comes to taxes, timing is everything. Missing deadlines can lead to penalties, so it’s important to stay on top of key dates. Here are the essential tax deadlines for self-employed authors to keep in mind:
Taxes may never be the highlight of your writing career, but they don’t have to be a source of stress either. With a little organization and the right information, you can make the most of the deductions available to you. Whether you’re just starting out or you’re an established author, the key is to stay informed, keep good records, and treat your writing like the business it is.
As Ashley wisely said, “Your time should be spent storytelling, not on bookkeeping.” So get those finances in order, take a deep breath, and get back to what you love—writing the next bestseller!
Register for our next Speaker Series! Each month we host live Speaker Series sessions with book marketing and self publishing experts. Anyone can join the live sessions and Gold & Platinum Members can watch the recordings any time!