Monday, March 9, 2015

#Authors! Make Love to the #Tax Man - Get Your Paperwork in Order...

Yeah, I know. Nobody thinks "sex" when the tax man shows up. That was a cheap ploy to get you here because everybody hates tax time...

I'm a CPA and this time of year, I step out of the Cass Elliot Crime Series to work in a tax office. We see hundreds of clients every year, and most of them pay more for our services because they don't take the time to organize their paperwork. (We have one trainable client - he tossed all his paperwork in a boot box and brought it to us last year. It took a couple of hours to sort through it all, and when we gave the boot box back to him, everything was bundled together by source: farm income and expenses, royalty income, itemized deductions, etc. This year, he did the organizing himself, saving us two hours and himself some cold cash.)

I know, I know. Authors are creative types and all this tax nonsense brings us down. It's not that bad, really. If you haven't kept track of your writing expenses during 2014, it may take a little longer to pull everything together, but it's worth the effort because every legitimate business expense you identify lowers your total writing income, which lowers your tax bill.

You'll need to:

gather your 1099-MISC statements from Amazon, Apple, Smashwords, B&N, etc. Ensure your name is spelled correctly and your Social Security number is accurate.

summarize any fees you received for speaking or other engagements.

summarize the income you earned from selling books directly (at book signings, book fairs, or direct from your website). Remember to add up the cost of all those books including shipping, any postage related to shipping them to buyers, and do a count to see how many books you have left in inventory at the end of the year.

prepare a simple schedule summarizing all the expenses related to your writing business (we have four businesses, use an Excel spreadsheet for each, and update them regularly). Use the expense section from Schedule C as a guide. (Read this post if you're not sure about using Schedule C over Schedule E.)

remember to include the miles you drove related to your writing business. If you take a royalty check to the bank, take a writing related package to the post office, visit a book club, or pick up paper and toner, all of these miles are legitimate business expenses. The easiest way to track them is to keep a mileage log in your vehicle, and write down the date, purpose of your trip, and starting and ending miles each time you make a business related trip (the IRS wants you to use a log and keep it as documentation). Failing that, estimate distances and number of trips. This year, start logging.

remember to include the cost of hotels, plane tickets, cab fares, parking, and meals when you travel for writing related purposes. If you attend writing conferences, the fees to attend are deductible.

include the cost of memberships or dues paid to writing related organizations, and the cost of writing related subscriptions.

if you write at home, measure the square footage of the area you use exclusively for your writing and the storage of writing related materials. You might be entitled to take an 'office in the home' deduction. Ask your tax preparer.

calculate the cost of health, dental, and long term care insurance for yourself and your family. If your writing business is profitable, you may be able to deduct some or all of these costs.

And that's pretty much it, folks. Your tax preparer will love you, or, if they're the no-personality type, not hate you. If you self-prepare your taxes, it'll make the process much smoother.

Leave your questions in the comments and I'll do what I can to help.

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Thursday, February 19, 2015

Tools of Torture in Texas - The Honey Locust Tree

One of the things I love about Texas as a setting for crime novels is that there are so many ways to kill people, or if we don't need a killing, just hurt them.

Take the honey locust tree. It's a nasty thing, and along with fire ants and snakes, one of the topics I plan to discuss with God when I squeeze my way through those Pearly Gates.

I've heard they can grow to over 75 feet, but I haven't seen any honey locusts taller than 40 feet or so on our place. Thank goodness, because they're a bear to take down by hand.

Here's why:


The branches of the honey locust are covered in dark red thorns that grow five to six inches long, and are barbed, making this tree a natural form of brutal barbed wire. These thorns aren't some namby-pamby flexible things; we've punctured tires on farm vehicles by driving over a honey locust thorn.

If that's not bad enough, the trunk is covered with clusters of thorns. Chopping one of these babies down requires careful de-limbing and a delicate dance as the tree falls. I don't think we've taken one down without numerous puncture wounds and scratches. Dragging it to the burn pile? Be careful, because gloves are useless. (We've moved on to using a Bobcat for this type of work. Our heads, shoulders, legs, arms, hands - even our feet - thank us.)

People use these things in their landscapes for shade and because the flowers are attractive. Personally, I prefer a less threatening form of garden enhancement. (There's supposed to be a thornless variety, but why take the chance?)

Do you see why I treasure all the weirdness in East Texas?

Back to the point of this post: torture. I don't think someone could die from a run-in with these thorns (I Googled it and found no instances of death by honey locust), but they could poke an eye out and perhaps end up with unintended piercings.

On the other hand, barbed wire contributed to a death in THE DEVIL OF LIGHT, and those barbs are much shorter than a honey locust's thorns, so who knows what might happen to a bad guy who runs head-on into one of these trees?

So far in the Cass Elliot Crime Series, twin teenage brothers Matt and Mark Grove have twice found themselves in situations where one or the other is assaulted by a honey locust, resulting in creative cursing and several dollars for the cuss bucket. I can, however, imagine a more violent use for them in the future. The bad folks of Forney County better watch out...

(I should come clean at this point: the USDA says you can find this horrible tree all over the US, with the exception of Oregon and Washington (and presumably Hawaii and Alaska). Which means you have free rein to torture a character with a honey locust just about anywhere in the states. But boy, I'd sure like to know what those two states did to become honey locust free.)

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Wednesday, February 11, 2015

To Schedule C, or to Schedule E? That is the Question. #authors #taxes

It's that time of year again, when I reluctantly leave imaginary Forney County where the Cass Elliot Crime Series lives, and step into that soul-sucking experience we call US income taxes.

If you're an author, you're in the same boat. Those beautiful 1099-MISC forms from Amazon, Smashwords, B&N, Apple, etc. are arriving via mail and email, and it's time to decide how to handle your writing business for tax purposes. You'd think it would be a straightforward matter, wouldn't you?


Settle in. We've got some talking to do. At this point, consumption of caffeine is appropriate. This post is a long but important one.

There's much debate in the author community about IRS forms, and most of the discussion revolves around whether you should use:

Schedule C - Profit or Loss from Business (Sole Proprietorship), or

Schedule E - Supplemental Income and Loss (From rental real estate, royalties, partnerships, etc.)

to report income and expenses related to your writing business. In fairness, it’s a confusing topic because royalty income is reported as, well, Royalties on your 1099-MISC.

I use Schedule C, but I wanted to make sure I was giving you good information, so I called the IRS. Surprisingly, the agent I talked to wasn’t an ogre. He was rather nice, in fact. My IRS agent, John, said:

If you are actively involved in the business of writing and intend to make a profit through your writing, complete Schedule C. You can claim all the expenses related to running your book writing and publishing business on Schedule C.

However, there are two times when an author would file a Schedule E:
  • if you are no longer actively engaged in the business of writing, but are still receiving royalties from your books, or
  • if you hold the royalty rights to a book you did not produce.

In both cases, the earnings from those books are considered passive. For example, after a writer dies, their books continue to sell and earn royalties. The person who inherits the rights to those royalties is not actively involved in the business of producing that product; therefore, the income is passively earned. Because this income is passive, it and any related expenses are reported on Schedule E.

To add credibility to non-ogre John's comments, the instructions for Schedule E state (on page 6, first column):
If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C or C-EZ.

Schedule C is designed to capture all the expenses related to running a sole proprietorship, which is what you, as an author, are until you form a partnership or a corporation in some form. Most of us will remain a sole proprietorship for our lifetimes.

Since the IRS says those of us who are actively engaged in the business of writing should file Schedule C, and the instructions for Schedule E even say we should file Schedule C, why the debate? It all comes down to that nasty self-employment tax.

Here's the rub: net income reported on Schedule C is subject to the 15.3% (in 2014) SE tax. In reality, you pay half that amount - you can (and should) deduct the employer portion of SE tax on page one of your Form 1040 (line 27).

Income reported on Schedule E is not subject to SE tax.

Makes Schedule E tempting, doesn't it?

Filing Schedule E means you can save 7.65% (your half of SE taxes) in taxes. However, in addition to the fact that we're supposed to use Schedule C, there's a good reason why filing a Schedule C makes sense for those of us who are self-employed.

Self-employed individuals (Schedule C filers) can deduct the cost of health, dental, and qualified long term care insurance (maximum deduction amount established by age) for themselves and their dependents to the extent of their net income from self-employment (see IRS Pub 535 on this topic). The premiums must be paid out of your pocket, not paid by an employer. Schedule E filers are not considered self-employed and cannot take this deduction.

Here's a rough example of how it works (hang with me, it's not as hard as it sounds):
You earn $15,000 in royalties from your writing business in 2014. Expenses related to that business in 2014 total $7,000. Your net income from writing is $8,000 ($15,000 minus $7,000). You'll pay $612 in SE tax ($8,000 x 7.65%).
You are a married individual and pay $5,500 in health and dental insurance premiums (out of your pocket, not paid by an employer), and $1,500 in long term care premiums for you and your spouse. Because the total of your health related insurance premiums, $7,000, does not exceed your self-employed net income of $8,000, you can deduct the full $7,000 on page one of your Form 1040 (line 29).
In this case, it benefits you to file Schedule C, despite the SE tax. "Above the line" deductions - those taken on page one of your Form 1040 - reduce your tax liability by your tax rate. (Keep hanging on, we're almost done.)
Let's say you and your spouse jointly earn $40,000. That puts you in the 15% tax bracket. The $7,000 deduction for health insurance premiums saves you $1,050 in taxes ($7,000 x 15%). Yes, you're paying $612 in SE tax, but you're also saving $438 on your total tax bill ($1,050 minus $612).
If you and your spouse earn $75,000, that tips you over the edge into the 25% tax bracket. Your $7,000 in health insurance deductions saves you $1,750 in taxes ($7,000 x 25%). You're paying $612 in SE tax, and saving $1,138 on your total tax bill ($1,750 minus $612).
To get a better idea of how this deduction works in your situation, see the IRS tax brackets for 2014, here.

The information included in this post is not intended to replace the advice of your tax accountant, but I hope it helps clear up the debate.

Now I'm headed back to Forney County for a little mayhem and murder. Come join me. Nothing reduces tax-related stress like killing off a few characters.

Helpful links:

Schedule C in pdf form / Schedule C Instructions

Schedule E in pdf form / Schedule E Instructions

Form 1040 in pdf form / Form 1040 Instructions

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