NOTE: These are suggestions only, and should be viewed that way. Please contact a tax professional in your area, for income and expense advice.
The first thing to keep track of is income, which was last weeks post. The second thing you’ll want to keep track of are your expenses. Which if you are a new author, will way out number your income. At first. But this is typical of most businesses in the beginning. So don’t be worried. Just do your best to budget (we’ll talk about budgets in another post) in a realistic manner. If things go well, they will either at least balance each other out, or in a perfect world, your income will far exceed your expenses.
What are expenses? An expense is money that you spend on things to run your business. And you have to be realistic about what your expenses are. Some are small, some are larger. The obvious are office supplies such as printer paper, ink, envelopes, etc. Advertising is another expense. Do you pay for banner ads, or cover ads? They are expenses. Do you pay for cover flats, bookmarks or other advertising materials? Those are also an expense.
Don’t forget the business use of your home. This one always comes up because you are technically allowed to deduct a portion of your utilities. Some people do this one and some don’t, because there are those who claim this is a red flag for being audited. Although the argument seems to be running about fifty/fifty at this point.
If you take classes to improve your craft, attend conferences to meet with editors, agents, or to market your current releases, those can be expenses also. You’ll want to keep track of who you met with and make a brief note about what was discussed. i.e. talked about manuscript XYZ. You’ll want to keep track of travel expenses to go to these events also. Conference fees, class costs. Keep track of the mileage, if you drive to the venue. There’s a standard deduction for that. Or maybe you traveled by airline, then taxi. Another expense.
Did you buy a $10k Persian carpet for your home office? They probably won’t let you get by with that one, but if you’re not afraid of audits, go for it. Just be ready to defend your decision to people who have the power to take money out of your pocket, and change your life.
For a detailed listing and instructions you can check out Schedule C, Profit or Loss from Business on the IRS website. This form will have to be added to your 1040 if you’re filing a tax return in the United States. If you’re from another country, they may have something similar.
Be mindful, and honest with yourself. If you’re just going to conferences to meet your friends, good for you, enjoy yourself. If you have no intention of ever really being published, don’t view writing as a business, and you’re just taking the tax deductions, it’s obvious to those who deal with taxes on a daily basis. Even if you don’t think so.