clues at the scene

clues at the scene

Thursday, January 10, 2013

Fiction and Taxes

Richard Nixon is a no good, lying bastard. He can lie out of both sides of his mouth at the same time, and if he ever caught himself telling the truth, he'd lie just to keep his hand in. 
Harry S. Truman 

I have to take a little time tonight for activities other than writing.

Activities other than writing : taxes. I have a little intellectual property company that manages all my literary and consulting income. One day the literary will surpass the consulting but for now, it doesn't. Nevertheless, managing the books as a regular corporation specifically for the purpose of segregating money gives me an great many tax advantages over running the income as an individual.

All of my business expenses are indeed business expenses right out of earnings right off the top. I'm not digging for documentation in the end. 

I run my business like ... a business.There's no co-mingled funds so everything from mileage, technology, subscriptions, books, office supplies - these come right off the top with no tax consequences. All capital goods depreciate and that comes out of future earnings. When I move an office to a boat, the company will own the boat and its depreciation will come off future earnings at that time.

Now, while I joke about lying and taxes, I'm pretty strict with the I.R.S. I keep a log of expenses, every receipt, the business purpose or project behind it ... all of it. I don't try and chisel a coffee at starbucks out of an entertainment fund because auditors don't like that sort of thing. Keep the books tight, clean, and sensible and it all comes out in you favor. [ A bit like writing itself].

The advantage in the end is that managing my writing expenses up front as a business and having my accountant help me with reasonable practices and record keeping will pay if ever I need to actually "manage" an account. Sounds optimistic, doesn't it ? 

I had a buddy co-mingle personal and business expenses with writing income. He did it badly. 

That whole "starting over" business is painful to watch. Better to get it correct out of the box.

Think of yourself and the tax consequences of getting that personal $20K 1099 for a lovely advance. Better to have a plan (and an accountant) up front than find out on the back end that it changed not only your gross income but your rate. Hate to write that check out of money that's already spent.

I want to write fiction for fun and profit. 

I don't want to have to deal with the tax man as a result. 

You might think about your own options just a bit. It's always nice to talk to an accountant to get you started on the right foot.

No, I'm not an accountant. I shot one in a story once, though. Haven't shot a taxman yet. I don't want to tempt fate that far. Priest ? Sure. 
Taxman ? Well, I'm superstitious over taxes.


Hart Johnson said...

This is REALLY good food for thought for me. 2013 will be my first year with significant writing income... yes, my 3 book contract had an okay advance, but it was sprawled over the turning in and publishing of the books, so the biggest check I got was $5,100 (the original signing) and there hasn't been much since then. I get a W-2 from my agent, but that just counts it as income, so expenses aren't that easy to sort. I've been thinking I needed to talk to an accountant and get things sorted before things really take off.

jack welling said...

Thanks Hart - hope it helps.

I make sure and max out the side income in the form of contributions to an IRA before paying myself, too.

I believe you can also stick that income in a 529 plan for sonny boy AND be able to use that money to pay for school without tax consequences to you or the side business. The limit is something over $200 K.

At least, that's my pencil plan to deal with the big money. YMMV. [ yes - I'll say to the kiddies you have to go to college in my home state. We have great colleges, law schools, and med schools here.]

All the best.