This is something I sometimes think about, being an indie author. If you haven’t published any books, you don’t have any income from them, so you don’t need to worry about the tax implications. But if you have, then either you need a person to do your accounting for you, or you do it yourself.
If you’ve self-published, you can be your own accountant. Trust me, if you can get your files sorted out to get through the kindle and smashwords hoops, you can make a list of your income and expenditure that will satisfy the tax people.
There is, of course, a helluva lot to learn about being an accountant. There isn’t a lot to learn about simple book-keeping, and that’s what we’re really talking about.
You need to keep a record (in a spreadsheet or a cash book that you can get from the newsagent, let alone a stationers) of how much you earned, when(date) and who from, and how much you spent in order to earn it, with date, who to and what on.
The complicated stuff is what your tax authorities will allow you to count as spending in order to earn it.
- paper to print it on (probably, if you do such a thing)
- printing ink (probably, although you have to show you don’t use such ink on other things, e.g. your holiday snaps)
- promotional costs (e.g. blog tour or book blast)
- copies sent from Createspace/Lightningsource etc to your home address (definitely – cost plus postage)
- copies sent from Createspace to other addresses that they charge to you, e.g. giveaways (definitely)
- cost of printing other promotional goodies and sending them out (definitely)
- cost of your computer to write more books on….. see below
- cost of heating the room you do all your writing in (complicated rules and probably not worth the effort)
- cost of tea, coffee, and other stimulants to help you write (no, and don’t even bother arguing)
You get the picture. The UK guidance to self-employed people is “things that are wholly or distinguishably part of producing your goods or service in the delivery of your business.” If you ONLY do something as part of writing and promoting your book, you can count it as a cost. This also includes the cost of converting US Dollars to your local currency in royalty payments.
If you make a list of these things in a spreadsheet, you just add up all your income from sales and royalties at the end of your tax year, then add up all the costs, and either put the totals in the boxes on your tax/IRS forms, or you subtract one from the other and put your loss or profit in the appropriate box on said forms.
You need to keep either electronic or paper copies of all your receipts/proof of payment. Someone might ask you to prove your costs are genuine. You can download a spreadsheet from KDP and from Smashwords to show all your sales and royalty payments in the dates of your tax year.
So… Easy. You can be your own accountant.
I mentioned tax forms. You have to do those. Get advice from your tax authorities. I’m sure they’ve already found you! They look worse than they are. They contain hundreds of boxes that are unlikely to apply to anyone needing to read this blog post.
Once you start getting royalties in the four figure bracket, you may need to learn more, or get an accountant to look over what you’re doing. For example, there’s something in UK tax that enables writers to spread their royalties over two years to even out the syndrome of huge sales one year and none the next.
Test: are you using your computer SOLELY for your work? Blog-hopping, even though it’s part of marketing yourself as an author, is unlikely to meet the requirements of the tax office because the line is so fine between socialising as a person and socialising as a company. Even if you have one identity for you as an author and you as a parent/aunt/friend. The cost(s) of your blog, your registered domain name and hosting costs, are all fine if you have a blog connected with your work. My guinea pig blog isn’t. This one, White Water Landings, Princelings, the Viridian Series, and Princelings Publications all are!
I’ve just bought a new computer because I finally realised the one I’m typing this on is not up to the hard work of making my books online. I’m going to put it on my costs. I can do my writing, publishing, setting up promotions and updating my blogs on it. But I have to keep it for work, not for play. Which is a shame because it’s got some really nice games….
In UK tax there is something I can do to spread the cost of this new computer across a few years of tax returns (capital allowances). But I can also put it on my costs as one sum in this tax year. I can’t do both!
US Tax for non-US authors
The final wrinkle is to make sure you include all your income from foreign sources, and to claim or avoid paying any US tax that you can. US companies are required to keep back “withholding tax” from non-US authors. Most countries have an agreement with the US (and between other countries) so that you can register to receive at least part of this withholding tax. Register – it is less painful than it seems, and in the case of the UK, it means you get all that money that the US would otherwise have kept for itself. This works for US authors being paid by non-US publishing sites too, I just don’t know of any!
See this blog post if you think withholding tax might apply to you.
Trust me. Tax is the only thing that should keep you from being your own accountant. And even that is manageable once you’ve done it once or twice – and you can always contact your tax office for advice… but don’t leave it till your tax return is due in!
UK end of tax year is end of March (it’s precisely the 5th April, but most use 31st March for ease of monthly accounting). Time to get my records up to date!
I am not an accountant and I am not qualified to give financial advice. This post reflects my experiences of being self-employed as a sole trader operating in the UK for over 25 years. If you require advice, please seek it from a proper professional.