Since it's Tax Day here in the U.S., I thought this would be timely...
A few weeks back, agent Rachelle Gardner posted a blog entitled "Writers And Taxes." Being that I'm pretty handy with finances, I felt compelled to offer a comment. One of the things Rachelle said was that you (we) should treat writing as a business. I thought back, and realized that around December of 2010 I did, in fact, make conscious decision to do just that. I have been using financial software -- first Microsoft Money and then Quicken -- for nearly two decades. But I realized that in order to make my writing a business, I needed to add the right "stuff" to Quicken.
A few weeks back, agent Rachelle Gardner posted a blog entitled "Writers And Taxes." Being that I'm pretty handy with finances, I felt compelled to offer a comment. One of the things Rachelle said was that you (we) should treat writing as a business. I thought back, and realized that around December of 2010 I did, in fact, make conscious decision to do just that. I have been using financial software -- first Microsoft Money and then Quicken -- for nearly two decades. But I realized that in order to make my writing a business, I needed to add the right "stuff" to Quicken.
I thought I'd put together some suggestions which have worked for me. Please pick and choose what works for you,
At the risk of stating the biggest oversimplification ever, you can make it as simple or as complex as you want to; just don't make it more complex than you need. For example, I've had a home office for years, so I already had a category called "Home Office Utilities." But, I had it broken out into several subcategories: electrical, water, phone, etc. Then I realized that the IRS doesn't care how much the phone bill is, how much electric bill is. They just care about utilities. So I changed it to "Writing Expenses:Home Office:Utilities," and assigned them all to that one. (If you don't use categories much, let me point out that the "top level" category is "Writing Expenses," with "Home Office" being a sub and "Utilities" being a sub of the sub.) Here is a screen shot of my Writing Expenses categories.
If you "tell" Quicken it's tax-related, the application will present the Schedule C Tax Line Item; you select it once, and then come Tax Time, you know what goes on Form 8829. Then, when you go to OfficeMax and buy some printer toner and paper, in your credit card's "register," you can choose the correct category, "Writing Expenses:Home Office:Supplies." Something to be aware of: Quicken tries to be "helpful" and make logical guesses for you. So for example, if the last time you went to the post office -- to mail a book to someone -- you put in Advertising Expenses as the category, the next time you go to the post office -- simply to buy stamps -- Quicken will automatically fill in the same category. I wouldn't call it a problem. You just have to be aware of it.
I guess I'm making a big assumption here...that you, at minimum, have Quicken set up to record your checking account spending and (as I do) to also download transactions from your credit card companies' online sites. If you don't, it's something to look into. But even if you don't...
Another Quicken feature to leverage are accounts, specifically cash accounts. I have created one called "Other Business Expense." (As an aside, I also have a cash account for "Other Medical Expenses" for health care expenses paid for with cash, and one for "Charitable Cash Or Item Donations" for donations which are not paid with a check or credit card.)
There's not that much to the "Other Business Expense" account, as you can see.
In most cases, for me, the entries in this account are "Writing Expenses:Home Office:Advertising," which is another way of saying, "I gave a book to someone in the hope that he would review it." To go into a little more detail, on the day that I mail it, I enter it in the register, and in the memo field I say one copy of Haunting Valley to John Smith, along with the value of the book. And, for that date, there will be a corresponding entry in the credit card register for the postage used to send it. It's a nice backup. Though books are the most common entry in this account, if (for example) I were at a conference and paid cash for coffee and cab fare, I could enter it here. At the end of the year, I add an entry to zero it out and start again.
There is an option you can choose so as to have these accounts not be part of your net worth. So in other words, the $200 you spent over the course of a year sending out books does not get subtracted from your overall account balances. Again, it's not a big deal. It's just something you can do in Quicken. Go to Tools / Account List. Scroll down to it, and click on the check box for "Don't include this account in net worth total."
One of the reasons that good record-keeping is important -- something I mentioned in my comment on Rachelle's blog -- is that you must make sure to pay at least 90% of your taxes during the year they were earned, as opposed to "squaring up" the following April 15. So if you normally get a pretty good refund, and only earn a few hundred dollars, you're probably safe. But if you earn a lot of royalties and usually don't get a refund, you will need to pay taxes on the amount earned quarterly. So for that reason, you will want to create one or more INCOME categories to go with your expense categories
and log your sales. Then, it's a fairly simple matter (a discussion for a future post, perhaps) to create quarterly income report.
