Death and Taxes

Aspects of Independent Publishing part seven: Necessary Evils

There are only two certainties in life: Death and Taxes.

As we are in the throes of dying season and as tax season is come upon us, I feel now is a good a time as any to address the unpleasant stuff we, as individuals, don't want to face. We all know you can’t cheat Death, but the IRS believes everyone cheats with their taxes.

Before we go any further, I need to make it very clear that I am not, repeating for emphasis, I AM NOT ANY FORM OF A TAX EXPERT OR TAX PREPARATION PROFESSIONAL. I have a tax professional I employ for one very good reason: the IRS scares the jeebus out of me.

Don’t go to a baker for legal advice. Go see a lawyer.

Don’t go to a grocer for tax advice. Seek a tax expert.

How important is it for a self-published author to seek professional legal and tax advice?

If you’re asking that question, I’d say it was of tantamount importance, and there’s little my blog can offer you.

Shel, why are you bringing this up
if you’re not at least pretending to be an expert on this topic?

Because.

Listen, if your writing goals include the phrase “professional quality” at any stage, it behooves you to treat your writing career and your publishing career like businesses. All businesses have at least these three things in common: paperwork, liability, and fiscal responsibilities.

Get thee a business plan. Get thee a taxman. Get thee a lawyer.

Unpleasant Business #1: Business Plans

This is the one aspect that I’ve harped on about before, so I won’t spend a lot of time on it now. But. If you don’t know where you’re going, any road will get you there. Scope out successful small businesses, not necessarily in the publishing world, and explore their practices. 

• Adopt the practices that work for you, but above all that, establish a business plan. 
• Keep it flexible enough to evolve with the times and the markets, but solid enough that you can follow it daily, weekly, monthly, and annually. If you’re a hybrid author, as in one who publishes traditionally as well as independently, you’ll want a plan in place for when your rights revert back to you. 
• Keep in mind that overnight successes in the publishing world are far from it. There’s a lot of hard work that goes on behind the scenes, sometimes for years. When you ask your favorite indie author “how do you do it?” make sure you’re asking about their business practice as well as their creative process. Not everything they do will work for you, but it’s important to have a strong knowledge of the industry you’re in, about the players that make the system work for them and about the players who struggle while the system controls their product.

Unpleasant Business #2: Taxes

Taxes are necessary evils the world over. We are obligated, some of us even at a religious level, to “Render unto Caesar that which is Caesar’s.” And no one likes an IRS audit. So, if you do nothing else professional in your writing career, at the very least, get thee a taxman.

Shel, we get it.

You’re not a tax professional.

So everybody's on the same page? Good. Let’s look at some of the ways we’re screwed we incur tax liability. And my apologies to my non-United-States readers, as an American, my scope of experience here is limited to the United States. 

Hobbyists vs. the Self-Employed

IRS definitions are found in the intent of your writing goals. Are you dabbling at writing, maybe offering most of your work for free, or entering the odd poetry competition like one enters their pie at a county fair? Or do you have plans to eventually quit your day job and make a living off of your writing alone?

Hobby: one cannot deduct against any income except the income from the hobby.

Say you publish a novel and you receive your 1099 from Amazon that states you earned $1000 for the year off of that novel. You go back through your saved receipts and you see that you shelled out $300 for a cover design, $400 for editing services, $125 for your ISBN, and $525 for a writer’s convention all-weekend workshop pass. You brought $1000 in and paid $1350 out. A hobbyist can only claim $1000 in loss against his income. The hobbyist cannot offset that remaining $350 against his day job income.

So, as a hobbyist, you cannot spend on your hobby more than you earn with your hobby, at least as far as the IRS is concerned.

However, if your writing is a business, you can probably include the $3000 you spent in airfare, hotel, and meals on top of that $525 workshop pass and get a business loss deduction of $3350.

Why is this loss important? It reduces your taxable income then, and therefore, your tax liability. And your tax liability, as a self-employed 1099 anything, is at least 30%. You don’t take those deductions, you owe $300 on that $1000, $150 of which YOU HAVE TO PAY NO MATTER WHAT.

Why? What is that $150?

It’s that pesky thing called a self-employment tax.

What?

Those of us who have ever lost a job, you know that COBRA letter that comes in the mail? You may have only been paying $150 a month for your health insurance while you were working, but under COBRA, you can continue to get your health insurance benefits at full price. So for a mere $800 a month, you can keep your medical benefits. I know, it’s a bad dream.

The self-employment tax is kinda the same thing. Okay, it's completely different, but bear with me here. As an employee at your day job, you are required to contribute a little over 7% to fund Medicare and Social Security and your employer matches that. The result is 15% to Medicare and Social Security. But, being self-employed, you are both your employee and your boss. You are liable for both halves. So, if your writing is a business, you should expect to pay $0.15 on every dollar you earn.

But that 15% is AFTER all your deductions. If you earn $1000, and can deduct $900 in losses, your taxable income is only $100, and at a 15% tax bracket + 15% self-employment tax, the final tax of $30 is much softer to your pocketbook than $300.

Watch it though. The IRS doesn’t like 5 consecutive years of business loss. They’ll suspect you’re hiding your hobby as a business, and will audit accordingly.

Unpleasant Business #3: Death

Even before you hit the publish button, you become a copyright holder. Current copyright law affords protection of your completed or in most cases incomplete work (this area is a little fuzzy for me so don’t quote me here and expect it to stick) whether said work is officially published or not, for your lifetime plus 70 years.

I’m repeating for emphasis: Your lifetime plus 70 years.

At the risk of sounding like a life insurance salesman, what do you have in place to help your loved ones manage your estate? Will your estate end up in probate and tie the hands of your heirs for years while the government tries to sort out the dotted Ts and the crossed Is?

We have a living trust, Shel.
Give us some credit.

Yea! Credit is given as credit is due. But just to make it clear for that someone who isn’t as prepared as you, let’s pretend we’re brand new at this.

A copyright isn’t a tangible thing, like a desk or a lamp. It’s more akin to an idea, and it has a life of its own, one that is guaranteed to outlive you by 70 years. It’s not something one can list among other tangible possessions.

To Aunt Petunia I bequeath 30 pairs of worn socks, my barbed-wire collection, all my copyrights, and the Phil Collins album of her choice from my personal record collection.

The government treats your literary and other creative endeavors differently than they do your barbed-wire collection. And you should, too.

Okay Shel,
what do you have against Aunt Petunia?

Wait, don’t get angry. Aunt Petunia could very well be the best bet for maintaining your literary estate. My suggestion though would be to ask your loved ones, all of them, who would be interested in fostering your writing after your untimely demise. Don’t just dump this responsibility on your kids or your cat because you think they should want the job, and don’t blindside them at the reading of the will either.

Ask them if they have the same vision with your writing that you do. Ask them if they know of an author who could finish a manuscript that you might leave unfinished. Ask them if they want to be in this family business before you shuffle your dusty computer files over to them. Tell them you expect them to be honest in their responses, because this is a 70 year commitment, one that could outlive even them.

It’s a 70 year commitment that will require of them a working knowledge of the publishing industry and the way it evolves so that they can balance between keeping your legacy alive as according to your desires, and staying flexible enough to incorporate new avenues of production that might exist in the future. It’s a 70 year commitment that will require of them the ability to negotiate secondary and tertiary rights agreements to interested movie studios and action figure manufacturing companies.

I would further suggest that you keep your mind open to the idea that the perfect person or persons equipped to handle your literary estate just might not be related to you. Maybe that person or persons come from your literary circle of friends, the ones that helped you publish independently to begin with.

And once you have a good idea as to who you want in charge, make sure you keep them in the loop for the rest of your life. This is a commitment you want to keep fluid and flexible, because times change, and people change.

And get thee a lawyer, one who specializes in literary estates, one you trust. Consider their advice. Discuss your options with all interested parties present. Take an active role in protecting your work and your loved ones. A lawyer doesn't have to cost a lot either. Services like PrePaid Legal can provide top-quality legal eagles for a monthly fee that fits your budget.

It's important to keep in mind that your divorce lawyer isn't a living trust specialist, and your real estate lawyer isn't a criminal defense attorney. Just because your friend knows a good attorney doesn't mean he's going to fit your needs. Like all the professionals you contact, vet him first.

If you have other questions of a non-legal nature about publishing independently, or if you would like a cheer squad to help you walk through the process, feel free to ask me. I’m willing to help where I can. If it takes a village to raise a child, why not a community to publish a book?