After all, this system is set up to encourage entrepreneurship. (Your government wants you to succeed as much as possible because more income for you means more taxes for them.)
Therefore, treat your self-publishing endeavor as a business. Employ careful planning and goal mapping, including future expenses and income, as a normal business would. The Internal Revenue Service (IRS) will consider your writing a hobby and not a business unless you generate a net profit in at least three of the last five years.
Being classified as a hobby won’t let you offset your losses through other income sources. So, it’s in your best interest to treat your authorship as an entrepreneurial endeavor.
In the spirit of entrepreneurship, you must promote yourself as a self-published author. Utilize various social media platforms such as Facebook, Instagram, Twitter, or LinkedIn. You can even set up your own website and visit schools, libraries, and bookshops to promote your books.
You can also get your Business Name Statement or Doing Business As (DBA), under which you can conduct your business processes separately from your real name. Think of it like a pen name but for your business. Be sure to look up how to register your DBA in your state/county/city.
There are lots of online resources you can take advantage of, and the U.S. Small Business Administration offers free business counseling.When you register your business name, you will be issued an Employer ID Number (EIN) or federal tax identification number.
This EIN can then be used when you apply for a resale certificate. This ensures that you are a real business entity that purchases or resells products. This is especially useful since you are planning to sell your books. You will also need to research your city’s or state’s local tax and business rules and requirements that may apply to you, such as business licenses and individual income tax returns.
Another important step is to make a distinction between your personal and business finances. Use separate bank accounts if possible. This allows you to keep track of your income and expenses more accurately.
When it comes time to file taxes, report your income and expenses in a Schedule C along with your 1040 form. If the taxes you pay on your income exceed $1,000, then paying quarterly estimated taxes may be necessary. In this case, hiring a tax professional is a worthwhile investment at this level.Lastly, keeping track of all your business records can save you a ton of headaches and IRS troubles, especially when it’s tax season.
Get anaccountantor integrate an accounting software for your business to keep track of where the money flows every day.
Remember tokeepall your receipts in whatever form—digital or physical. Hang on to financial records, such as bank statements, sales tax returns, W-9s and 1099s, sales slips for direct sales, correspondence with freelancers, PayPal summaries, royalty statements, and other relevant records.
Remember to document everything properly to avoid being questioned by the IRS later on.We know this might seem overwhelming at first. This is the technical and unromantic side of being an author, but it’s very much worth it in the end! By knowing and following this advice, you ensure that your books do not just end up a hobby that leeches off your wallet, but instead an endeavor that might one day replace your day job!
By knowing how to do your taxes properly and setting your writing up as an entrepreneurial venture, you make sure your books make a valuable return and that you are rewarded for your hard work.DisclaimerRemember to consult your local attorney andaccounting firmshould you have specific queries, as this is not a substitute for legal advice.
