We did our taxes this weekend.
Despite making significantly less than the poverty level last year--me being out of work for most of it and all--the IRS is taking a gasp-inducing chunk out of my writing income. The rest of my wages (from the OLC), we don't owe taxes on due to our deductions and because of how meager they were. But my writing income, they still tax.
As it turns out, no matter how little I make as a self-employed freelancer, if I make any profit, I will get shafted. There is no "you made so little last year that your taxes come to zero" for the self-employed, although there is for everyone else.
Ole Uncle Sam really doesn't like independent entrepreneurs or freelance artists. Sheesh.
And, once again, I am pondering whether making myself an LLC would be beneficial. It's easy enough to do. I send in some paperwork to the Secretary of State and a $100 fee (with a $30 annual renewal thereafter). The virtue of working where I do, I'm a lot more familiar with Georgia state laws and how to look them up--as well as legalese in general--but I haven't managed to wrap my mind around federal tax law. And that's the clincher. I haven't waded through all the IRS verbiage to get to the gist of whether I would gain any benefit and manage to avoid being double taxed if I incorporate myself.
Sigh. A fun project for after session, maybe.
Be sure you're getting all your deductions available (work space, computer, printing, postage for MS mailings). Yeah, writers have a bitch of a time with taxes. Could be worse, you could be Asprin. Just SAY "IRS" to him and watch him snarl.
They get you with that self employment tax - supposedly your share of the social security funds that are not collected on your behalf when you make a sale. I suspect an LLC will help you some but you'll still have taxation issues when your company pays you. Probably need someone who wears a CPA full time to work it out for you...
Such is the price you pay for success, eh?
And, once again, I am pondering whether making myself an LLC would be beneficial.
A for-profit corporation is a marvelous tax-dodge. You pay yourself a small salary, and you take the rest as a dividend, which is only taxed as regular income--not self-employment.
It's probably worth it to pay a good lawyer/accountant to help you--they can help set things up so it's not only legal but of the best financial benefit. A mediocre accountant/lawyer can set it up, but they rarely take the time to make sure it's the most beneficial structure.
By the way: "Hello!" *waves* I'm back on LJ. I'm so glad to hear things are still going well for you.
Hi! Yay, you're back!
Yah, I know that the best course of action would be to consult with a lawyer and tax accountant, but at this point in time, the fee they'd charge would most likely be more than the benefit I would expect to get from the undertaking.
I know that the best course of action would be to consult with a lawyer and tax accountant, but at this point in time, the fee they'd charge would most likely be more than the benefit I would expect to get from the undertaking.
I know that feeling. I hear you can do the easy version by yourself with very little hassal. Good luck!
I think it must be beneficial, because I've heard successful writers say that they do it. I've never been successful enough to have to worry about it (although that may change come next year, thanks to Constant-Content...actually, I think I've already made enough this year that it will. Rats.) Anyway. I would ask an author who has done it or hire a good lawyer to look into it.
I've bugged successful writers about it--ones who make their primary income from writing, unlike me--and I remain perplexed. It's an obvious thing to do if you make a significant amount of money and all of your income from writing, like Laurell K. Hamilton or Stephen King, but I'm not sure at what point it becomes worthwhile for a writer who doesn't earn all or most of their primary income from it.
Argh. I have a head for words, not numbers!
My guess would be...it becomes beneficial at the point where the fee to set it up and keep it going becomes less than the amount you're paying in taxes. :-) But I don't know when the paperwork becomes worth it, because I don't know how much paperwork is involved.
Yes, I had figured out that ratio of cost and benefit, silly. But being a corporation requires tax complexities and other forms and filings that I don't grok (yet), which leaves me with a big ole question mark. Stupid federal tax laws . . .
Love to help, but all I know is how to handle taxes for sole proprietorships. Those are easy. 1040, Section C, with loads of expenses that most people don't think of (of which I only use half in case the IRS tries to be a-holes like they were last year. I sooo loved putting egg all over their faces. MWAHAHAHAHAHA! Too bad some [expletive deleted] robbed me blind after stealing my bank account number. Argh!)
Taxes are a stone bitch. I'm just glad I have a) a house with a home office, b) a husband who has a nice, normal, W-2-producing job, and c) a sister-in-law who gets this self-employment stuff and did our taxes for us for the price of a good dinner. Almost all my income is from some kind of freelance, 1099 activity...
Argh! No deductions on the mortgage and utilities.
Actually, fosteronfilm and I debated this, as last year was the first one where I could realistically claim a home office--obviously I wrote from home before, but we actually set up a proper office for me to write in last year--but we weren't sure how to calculate it and figured it wouldn't make a difference because our other deductions zeroed out what we owed on everything but SE. In hindsight, I realize that was an error. I suspect my hubby, who did the majority of our taxes, didn't realize that the home office would've come off my Schedule C and not our 1040, thereby directly impacting my taxable SE. Not his fault; he's not any more tax savvy than I am, and I didn't have time to double-check tax rules and regs because of session. But yah, that would've helped. Snartleblast! Well, I'll know better next year.
yep, that's what Schedule C is for (or so I believe; my accountant handles the details). In addition to a prorated portion of rent and utilities, you can also claim reasonable travel expenses (e.g., hotel, transportation, and meals at conventions), research materials (yay, deduct those books!), internet expenses (web page support costs), and assorted office expenses (e.g., postage, envelopes, photocopying).
Basically, you take the allowable categories from Schedule C and create a spreadsheet that you add to throughout the year. It's quite handy, and the expenses add up fast. I won't go into the details in a public forum, but feel free to give me a call sometime if you'd like some specific examples.
And note: it's not too late to file an ammended return. :)
I so need an accountant . . .
Yah, I knew I could deduct (qualified) travel expenses, research materials, Internet expenses, computer equipment (yay!), office supplies, etc. as a freelance writer. And I maintain a thorough and detailed spreadsheet for those. It's only the actual home office real property + overhead (mortgage and utilities) that I haven't deducted.
Them's are magic words: "amended return." The hubby and I are scouring IRS forms now . . .
This is completely off-topic, but I wanted to comment and say that I've friended you because I've been listening to Escape Pod in catch-up mode and have enjoyed one of your contributions ("The Life and Times of Penguin") and am about to listen to another ("My Friend Is a Lesbian Zombie"). I'd be listening to it right now were it not for work. Pesky bills. When Steve mentioned you were local to Atlanta, I did a search and there you were.
"I'm conducting an online workshop, Worldbuilding for Writers: Transporting Readers Beyond the Ordinary. Register HERE. (Deadline, May 27.)"
Already heard about it. Already planning to register, hopefull with next paycheck. If not the paycheck after.