Making money writing

Yes, writing can be creative and fun, but at some point when your work goes into print, it will become something more--a business. With income. Expenses. All that jazz.

I don't see too many writers talking about the need to get your head out of the sand when it comes to treating your writing like a business. I guess it's because many creative people tend to get a glazed look when you mention the T word. Yeah, I mean taxes.

You might think you can jettison this worry onto someone who cares about this stuff--like your accountant. You can't. Not entirely. There are some things only YOU can do. And if you want to avoid a whole lot of headaches and stress, it honestly pays to educate yourself a little about this business-money-tax stuff.

Last week I attended an adult education small business tax workshop just to pick up some of the basics. Now that my head-cold fog is beginning to lift, I thought I'd share a little of what I've learned.

Business or hobby?

One of the first things to consider is whether you believe you will actually bring in some real income from your venture. Having substantial start-up costs and taking a loss is normal for the first few years. But if you plan to deduct all of your writing expenses, you need to post a profit within a few years, or the IRS considers your writing efforts a hobby.

Are you agented and out on submission? There's a good chance you could land a book deal, and with it comes income you will owe taxes on. Take the time now to get all your financial ducks in a row to minimize your tax liability. By that I mean register yourself as a business (likely a sole proprietorship), and track your deductible expenses. There are LOTS--from web design to business cards to your home office utilities. Even if you plan to use an accountant, you will need to keep records of your expenses. The teacher recommended the US Small Business Administration site (http://www.sba.gov/) as a great resource for getting started.

Ditto if you plan to self-publish or to sell short pieces to paying markets (and make more than $250 annually doing so).

If you sell stories or articles and only receive token payments, that's hobby income. The kinds of things you can deduct as hobby expenses are explained here: http://www.irs.gov/publications/p17/ch28.html. Note that you can't deduct losses (expenses that are over and above than what you got paid), you can only claim expenses up to the amount you made as hobby income. Tracking hobby expenses and income is a great way to get up to speed before you land a book deal, so do seriously consider doing some magazine work. Seriously. The writing credits and networking are some additional benefits.

First steps

~Remove your fingers from your ears and stop singing "La-la-la."

~Educate yourself about the rules. You must deal with three taxing entities: the federal government, your state government and your local government. The laws may have some overlaps, and may have some significant differences. An adult education class is helpful, and your local chamber of commerce and the SBA are also great resources.

~Apply for a federal EIN (employer ID number), for free, at the IRS site: http://www.irs.gov/businesses/small/article/0,,id=102767,00.html. You must have one to open a bank account that you dedicate to your writing income and expenses. It's really best to do this--keep your writing business as its own entity. It's much, much easier to track what comes in and goes out when it's not mixed in with your personal finances. You'll also need and EIN to deduct the cost of some services you hire out for, like editing.

Self-publishers take note: if you plan to set up your own press, WAIT to apply for an EIN until after you have registered your press name that you will be "doing business as." More information about is available from the SBA here: http://www.sba.gov/content/register-your-fictitious-or-doing-business-dba-name/.

~Apply for a small business license as required by your state or local government. The SBA has all the needed state links: http://www.sba.gov/content/business-licenses-and-permits. My municipality requires a license for any kind of business, so be sure to check in with your local government to see what their regulations are. Your local chamber of commerce may be able to help with this step. Don't be shy, give them a call if your local regulations are difficult to find.

~Open your checking account, using your EIN as the ID number rather than your SSN. Use it for all your business expenses: your web designer, your caterer for the launch party, etc. Deposit royalty checks here and link it to your paypal or Amazon account. This step will save you a ton of headaches!

What aspects of writing-as-business surprise you? Intimidate you? Was this post helpful? What else would you like to know?

Categories: decision making, publishing, self-employment, taxes, writing business