Let’s. Talk. Taxes.
Now I want to start this off by saying that I don’t care if you are in the red or the green or have no idea how much money you have or haven’t made. It doesn’t matter what you think you should or shouldn’t have to pay. It doesn’t matter if you consider this to be a silly little hobby and what does it matter.
I have a few basic rules in life. One of them is don’t fuck with the IRS.
Because going to get theirs, whether you want to pay them or not.
DO. NOT. FUCK. WITH. THE. IRS.
So for the love of God… file your fucking taxes.
Now let’s do this.
DISCLAIMER
I am not a CPA. I’m not even a math girly. I don’t know anything, beyond what I am just fumbling through the dark trying to do. I used a CPA for 2022 taxes, and I will most likely be using a CPA again, because this shit is confusing. It’s CONFUSING. And if you google use google or even just jokingly say, hey, this is a tax deductible – I know that we all joke and say that things are a tax write off, but I can tell you right now, from a single google search, some of the top results are actually incorrect.
Again, because I used a CPA, and she sat down and looked at all of my crap and all of my stuff and all of my expenses, and she went through and figure out what was and was not a tax deductible thing, because I more or less just dumped everything onto her and said here, this is what I made, this is what I spent, can we sort this.
I AM GOING TO HIGHLY RECOMMEND USING A CPA. BECAUSE THEY ARE THE PROFESSIONALS. AND WE DO NOT FUCK WITH THE IRS.
That stated, do you have to use one? No. You do not.
But mine cost me about $300 for doing taxes that included selling a house and moving across the country and combat pay and taxes and my disastrous author earnings and expenses and random withholdings and honestly it was probably the best money I have ever spent in my life.
And so, with all of that said… Because again, I am not a CPA, and I am not a math girly.
But I do recommend using one! And that’s the only “advice” on filing your taxes that you are getting from me. Everything else from this point on is just “what I am doing and what I did” because again, not a CPA, not giving tax advice.
Let’s take a look at what I sent to my CPA, and what came out of it.
Because good golly God, this is fucking confusing.
Okay then.
KEEPING RECORDS
I hope that at this point in time, you have been keeping some sort of records on what you are spending and what you are making. Like, a budget. I know, I know, chaos gremlin here encouraging organization? Yes. That was because, at the start, I was on a strict budget, so I kept a very close watch on what was I spending, because I only had so much money. And when, once I started making money, and realized I would have to pay taxes on it, I said okay, let’s stay on top of this.
And boy oh boy, am I glad I did.
Now, if you’ve looked at my Author Stats, you’ve seen my spreadsheets before. I have two different sheets I use.
(You can view the previous post about Budgeting here)
One is very basic. It’s my Expenses and Income. I write down who I paid, when I paid them, what I paid them, and what it was for. And then the flip of, who gave me money, when they gave me money, how much money, and what it was for. Very. Very. Very. Basic.
And this is a great place to start! I more or less just go to my credit card and banking statements, and copy and paste, and format it to match my layout. It’s what I spent, and what I made. With notes. Organized by quarter.
THIS IS AN AMAZING STARTING POINT. GO DO IT.
The second spreadsheet is a little bit more, and I wish that I could share a blank version of it with you all, but I actually used an Etsy layout that I ended up beating a bunch and adding my own formatting and formulas. You can see all of the formulas in the post I linked above. But, I want to talk about why this sheet is very important as well.
When you begin working on your taxes, whether you’re doing it yourself or with a CPA, you are going to need to give an Income and Expense Report. This helps you figure out what you owe taxes on and what you do not. And by having this all laid out for you, it is a thousand times easier to figure out what you need to put on this report. I can easily look at the main page, and see what in all I spent throughout the year, on what, and then plug it into the I/E report.
So, go figure out your records. I personally use a business charge card for everything that I do, which makes it a thousand times easier to see what I have spent, because it’s all right there, not mixed in with personal expenses. And, with the charge card, I get points, but I’m also having to pay it off each month, so I have to keep in budget with the money I have, and I don’t collect interest. Granted, this might not be something everyone can do, but a separate account just for author banking? Yes.
And now…
INCOME AND EXPENSE REPORT
I do have a link available for y’all to get you started. Please note, your expenses might be different from mine. In fact, they probably are. If you went to any author conventions, you probably have travel expenses. That’s just one of the possibilities. But, this will hopefully get you started.
There are explanations on each item listed there, but let’s break it down, category by category.
INCOME – This feels self explanatory. Your income. Your full income. Everything you made from everywhere. And I do mean everywhere. Royalties. Signed books. Merchandise. Patreon. All of it. If you made money, this is your income.
ICOST OF GOODS – This is a grand sum of everything that it costs to make your actual products, whether it be books or items in your shop. Anything that you had to purchase or spend on in order to make the items themselves. This could be items such as:
- Paperback books
- Merchandise for Shop
- Stickers
- Bookmarks
- Book Covers
- Book Proofs
- Stock Images
- Fonts
- ISBNs
- Comissioned Art
- Book Editing
- Audiobook Production
GROSS PROFIT – This is your INCOME minus your COST OF GOODS. That is your gross profit. That is what you made.
EXPENSES – This is what you spent that is NOT related to your cost of goods. This entirely has to do with the business itself. Things you had to purchase in order to do your job as an Author. Not things you purchased that you ALSO used as an author. Specifically, this was for the business, and the business only.
This includes things like:
- Marketing
- LLC Setup
- Website
- Personal Assistant
- Shop Fees
- PO Box
- Canva/Bookfunnel/Mailerlite
- Items for Shipping
- Cost of Shipping
- Travel Expenses
Now again, this is a very short list. A very brief list. A CPA can help you to figure it out better than I can, and in fact, if your CPA has worked with an Author before, they likely will have a spreadsheet that you fill out, which will make this process much easier.
This spreadsheet is how you will figure out your tax forms, if you do it yourself. It’s all in there, you just have to plug in the numbers as you go.
This is what I used. This is what I will continue to use. This is how I figure out my tax stuff. With this above.
“Tax Deductible”
I noted above that we all love to jokingly say, just buy that thing, it’s tax deductible. I’ve also seen people mention that things like a room in your house for an office makes part of your rent tax deductible, or things like internet.
IF YOU ARE USING THESE ITEMS FOR THINGS OTHER THAN JUST AUTHORING, THEY ARE NOT TAX DEDUCTIBLE.
Like, it’s a good joke. A great joke even.
BUT DO NOT FUCK WITH THE IRS.
Now, yes, if you have a laptop just for authoring, that item is tax deductible. If you have an office that is only your office and no other purpose, yes, a part of your rent can be tax deductible. But again. It has to be something used only for the business.
Obviously, if you have a CPA, you can talk about this sort of thing, I sent over all of my notes, and said hey, I have this expensive agenda I use, and I have internet costs, etc. And they did not apply to my taxes. Yes, I paid for them with my business account, but at the end of the day…
IRS has final say.
You do as you want to do, but again, this is what I am doing, and I am deferring to those with more knowledge than me.
WHAT I PAID IN 2022
Now, I’m sure you’re all curious how much I had to pay for 2022 taxes based on my expenses and income report. And, it’s a little wonky for me, because my husband has a lot of tax withholdings, which we normally get back each year, so while we did have to pay taxes, it was not actually what my total amount owed was, so, here’s the numbers on what we owed, if we hadn’t had any withholdings throughout the year.
And please note, if you owe any money from this year, you will have to pay scheduled amounts next year, because apparently the IRS likes for no one to owe anyone, and so, yeah. They obviously don’t realize that the income and expenses change from year to year, so after your first year, if you are in the green, you will have scheduled payments. And then, you may get some of that back, depending on how your year goes.
Okay, okay, the numbers.
Income: $36,560.34
Cost of Goods: $4,436.93
Gross Profit: $32,123.41
Expenses: $3,270.29
NET Income: $28,853.12
Total Amount Owed: $7,199
Now let’s break this down.
In 2022, I made a total income of $36,560 between royalties, patreon, and signed books. My cost of goods, meaning the cost to produce these items, like buying author copies, cover design, audiobook production, etc, was $4,436. Once you take that out, That means my gross profit was $32,123. So that’s the base line.
My expenses were $3,270, which is everything from shipping costs to my website to canva… all the things I need in order to basically do my job to the fullest extent that was NOT a cost to actually produce the items. This brought my NET Income down to $28,853. And so, from there, I owed about 25% of my NET Income in taxes, which is $7,199.
When I say I saved about 30% of my income for taxes, this is what I mean. I saved almost $11,000 for taxes, and yes, I had more than I needed, but the thing is, if I didn’t spend a lot between the cost of goods or other expenses, I would have to pay taxes on my full income. So let’s say I didn’t do signed books, and I had no audiobook, I don’t do canva and a website and having my LLC, and I did my own covers…
With less expenses and less cost of goods, that means my NET Income would be higher, which means paying more taxes on them.
30% is a good amount to save, particularly since I don’t know exactly what I will be spending in the upcoming year. Yes, I can say I plan on buying this many covers, and I can look at my regular monthly expenses and know that I will be spending this much, but it’s not an exact number until the end of the year. What if I don’t buy as many covers? What if the three audiobooks I planned to produce this year become two because production is pushed back? What if I don’t end up purchasing the ISBNs I intended to purchase?
Well, now the money that I planned on spending on cost of goods and expenses is left sitting there, untouched, and needing to have taxes paid on it.
30% is the amount I save across the board, and worst case scenario, the extra I have left sitting there can be used to apply to more covers and more projects and maybe even a big purchase in the future.
* Note: my “big purchases” from what was left over from last year’s taxes were hardback cover design for an upcoming book release, a new printer, and ISBNs. Again, big purchases that I could buy outright rather than save up, because the money was leftover!
AGAIN
I am not a CPA. I am not giving you tax advice. I am not telling you how to file your taxes. I’m just telling you what I did, and what I kept out, and what I will continue to save going forward. Also, the spreadsheets I use, because everyone should be keeping track of their receipts and their budget and their spending. And I hope I made that very clear here.
The $300 I spent on a CPA was the best thing I could have ever done for navigating this process, and I recommend this to everyone else as well, if you can afford it.
Good luck out there. And go file your taxes.