Run your self-publishing efforts as a business. You’ve probably heard this many times before, but why does it get said so often?
Lately I’ve seen several people ignoring this advice and I don’t understand why. Some are saying they intend to form a sole-proprietorship later on when they have a few books under their belt. Some just see it as too much of a bother or a waste of good writing time. Others seem to be intimidated by the process and find excuses not to do it. Most are just ignorant of the advantages of doing so and don’t bother to explore the subject enough to educate themselves.
Whatever the reasons they may use, they are beside the point. What it all comes down to is MONEY, and people who fail to treat their self-publishing as a business are simply throwing good money away.
Treating your self-publishing as a business is legal, easy, and to most people’s surprise, encouraged by the government. That’s right; the government wants people to build small businesses! To encourage it they provide several tax breaks that are easy to set up and take advantage of. The tax breaks start before you even get the business up and running and are available regardless of whether you make a profit or not. Waiting to set up your publishing company until after you have your books out is simply losing out on this opportunity.
Let’s start with a simple example; your home office. If you’re like me you have a place in your home set aside for your writing. I have a converted bedroom that I use as a home office, but your home office can be a corner of a room or the kitchen table if you use if primarily for your writing. If the room you use for your home office is 10×10 (100 square feet) and your home has a total square footage of 2000 square feet, then your office comprises 5% of your home. According to federal tax regulations you can deduct 5% of your home-owners insurance, utilities, trash removal, and other home-related expenses as a business expense.
It sounds easy because it is. It’s also perfectly legal.
But what about all that money you have to spend to get it set up? Those expenses are all deductible as well. Start-up costs for a sole-proprietorship are tax deductible. Licenses, permits, tools and equipment, office supplies, hardware, and advertising costs are all items that can be claimed under the heading of start-up costs as long as they are used for the business.
For a detailed list of what is deductible consult Schedule C of IRS form 1040. Be sure to refer to Schedule C when you are setting up your accounting for tracking your expenses. Schedule C will help you determine what you should be keeping track of and under what heading each item belongs. If something is not listed as a category you need, you can list it separately under “Other Expenses.”
I know it sounds like something most people hate to do. But it’s really not that hard and will be well worth it in the end.
Again, it’s about the money.
Section 179 of the federal tax code lets you deduct the entire purchase price of business equipment the year you put it into service. (up to a limit of $25,000). This is the reason you want to take the steps to running your self-publishing as a business right from the start. Waiting until you have a few books done does nothing but cause you to miss out on these benefits.
You’ll see the term “listed property” quite a lot. The term listed property (according to the IRS) applies to items that are generally used for entertainment or recreation, but may be used for business as well, such as computers, printers, cell phones, desks, lamps and comfy office chairs.
This assumes that the listed property is used 100% for business. If it is used for business more than 50% of the time, then you may deduct the corresponding price, up to the limit.
A good example of this is your computer. If your computer is also used by your family you will need to keep a log of its usage. Keep a pad of paper and a pen next to the computer and ask everyone who uses it to write down the time when they start and stop using the computer. You will need to do the same for your business time as well. This way you will be able to prove that the computer was used 50% or more for business use. (It also states that you must place the computer in a room other than your home office or the non-business use will violate your home office’s requirements of exclusive business use. How the IRS will know this I have no idea, but it’s the spirit of the law I’m speaking to here.)
This applies to all the property you are listing. Keep a log to show both business and non-business use.
Here is a sample of what is listed under Schedule C. These items are all examples of what may be deductible.
Office supplies; paper clips, pens, notepads, post-its, paper, toner, ink cartridges, staples, pens, batteries, etc. all may be deductible.
Phone; if you use your phone to conduct business pertaining to your publishing company you may deduct the expenses. If you use it for other things as well you will need to track your usage and account for it. This pertains to text and e-mail as well if done on your phone.
Internet fees; If you sell and promote your books online via a website the fees you pay to support it may be deductible.
Business equipment; if used primarily for your writing or the promotion of your books, items such as your computer, software, printer, monitor, tablet, router, mouse, keyboard, thumbdrive, camera, etc, may be deductible as a business expense.
Postage; your PO Box and postage fees may be deductible if used for your business. All those charges for mailing those 3lb manuscripts suddenly aren’t so bad now.
Books and research materials; your Copyright Handbook is a good example of a deductible item in this category. If you subscribe to a writing or publishing magazine, or online weekly, it may be deductible as well. Any material that you can show was acquired to aid in the production of your book may fit in this category.
Office Furniture: Desk, chair, lamp, bookshelves, etc.
Advertising; Web ads, flyers, brochures, videos, business cards, etc. may all be deductible.
Travel and Expenses; If you travelled to a location for research purposes your expenses may be deductible. Be careful here. Planning a trip to Tahiti and then trying to cover it with a scene in your book may be pushing it. But if you drove two hours to visit a nuclear power plant that your main character is in charge of defending you may be able to claim the trip. If you travelled to do a book signing your trip is a business expense and may be deductible.
Bank Fees; Setting up a business requires a business bank account. Any fees or expenses (such as checks) related to this account may be deductible.
Legal and Professional Services; This can be a big one. Did you hire an Intellectual Property lawyer to negotiate a contract for you? Did you hire a cover artist or pay a formatting service? Did you pay someone to edit your manuscript? All of these fees may be deductible. If you had lunch with any of these people while you discussed your business that meal is also deductible. A good practise is to write the name of the person you had lunch with on the back of the receipt when you sign it. It makes the accounting much easier. (For a clearer understanding of this see IRS publication 463, it explains what is deductible in relation to meals and entertainment.)
Licenses and Permits; Any fees you paid the state, and if required, the county to set up your business may be deductible. This includes the fee for the ad you were required to run in the local paper.
ISBN’s are a business expence. So are fees charged by POD companies.
Insurance; If you’re successful enough with your writing to support yourself and your family then the money you pay for medical and dental insurance may be deducted from your gross income. Also, any premiums paid for long-term care insurance may be deductible. This is specific to the tax year you are filing in only, and can be tricky, it’s best to consult a professional when dealing with insurance deductions.
Tax Preparation; This may be the best one of all. Instead of doing all the tax work yourself you can hire someone more knowledgeable to do it for you and still deduct his fee! Trust me, it’s worth it. A smart tax professional will most likely find deductions you missed and they end up paying for themselves in the long run.
This just scratches the surface of the advantages of operating your self-publishing efforts as a business, for more information or details relating to filing taxes as a sole proprietor, visit the following web sites:
I also recommend that you read IRS publication 334, Business Expenses for the Sole Proprietor. (All IRS publications referenced in this blog post are available for download at the IRS web site.)
So, as you can see, the benefits of running your self-publishing efforts as a business are several. Whether an author is writing one book or one hundred it behoves them to set their self-publishing up as a business and educate themselves in its operation in order to take full advantage of the opportunities that it offers.
If not, they’re simply throwing good money away.
Oh, by the way; I’ve asked several times, but I’m still told that coffee is not deductible.