This month's celebration of what we're doing right continues with another top resolution: finances. Since writing is a form of self-employment, dealing with the financial end can seem complicated, even mystical.
Finances don't have to induce a migraine headache nor are they rocket science. This week we'll look at them from a writer's perspective. Don't be scared! You already have the skills; after all, you balance a checkbook, file taxes, and manage your money.
Writers need to do two things: save receipts and keep records of their income. These two things will make tax time easier. On Friday, we'll look at a simple method of recording income, but for now, we're focusing on saving receipts.
I have a manila folder marked "2010 Writing Receipts." Complicated, huh? What goes into this folder? Receipts for the dues I pay to writing organizations, for reference books, conference fees and related expenses, magazines, my website, office supplies, and anything else legally appropriate to deduct from taxes. EHow's: How to Deduct Expenses Writing Income answers many questions about appropriate deductions.
Saving your receipts saves you money. Deduct expenses on your tax return to legally keep your hard-earned cash. Store the receipts with your tax return that way if you're audited, the receipts serve as proof. It's as easy as that.
Freelance writers and authors are considered independent contractors. You don't have an employer to withdraw taxes from your paycheck. Unfortunately, Social Security and Medicare taxes are your responsibility too. With no employer footing half the bill, you're responsible for the full amount. Another great eHow article: How to File Self-Employment Taxes details the steps to file. If you owe more than $1000.00 in SECA taxes, you will pay them on a quarterly basis. and you'll estimate how much you owe.
Check out "Estimated Taxes" through the IRS website for the nitty-gritty details. Be aware, depending on where you live, you may have to pay state and city quarterly taxes too. An Internet search or a call to your county office should provide the answers for you.
Another great resource is "If You are Self-Employed" at the Social Security Administration's website. Read through the links listed at the bottom of the article for the full scoop.
When filing your annual taxes, you will use a Schedule C. Fill in the appropriate six-digit code stating you're a sole proprietorship. Some localities require self-employed individuals to file for a sole proprietorship. Check with your state and county for information. Another interesting article on the topic is eHow's "How to File for Sole Proprietorship."
Filing for a sole proprietorship is not your only option. You can also incorporate. There are pros and cons to both, but most newly published writers will probably best be served by sticking to a sole proprietorship. As your career flourishes, you may want to have more legal protection or reduce the amount of taxes you're paying. Incorporating can legally accomplish both.
Don't feel you need to learn this all on your own, though. A CPA can guide you through the tax process and make suggestions based on your situation. Never be afraid to use a professional!
Join me on Wednesday when we'll discuss financial planning: estimating income.