Now for my least favorite topic. Taxes. It’s not just because it’s complicated and involves math, but also because a mistake could land me in a very hot seat. That’s why I’m extra organized when it comes to money matters and record keeping. It’s also why I err on the side of caution when it comes to legitimate business deductions and recommend you get professional tax advice.
Tool #1: Find a qualified tax professional in your area. Because taxes in general are so complicated and the rules seem to change a little every year, it’s important to find someone who is familiar with small business. Even if you feel confident enough to file your own federal income taxes, it may be worth it to sit down with a professional once just to make sure you’re claiming everything you can and should.
When I first got married, my husband and I had our taxes done by someone else. I remember gathering all of the documents we might need and walking into the office, only to watch that person calmly enter a few numbers into their computer and collect a big check. The next year—with a very tight budget—I determined to do them myself and spent hours comparing the previous year’s documents and tax return with the current documents in order to figure out which number went where.
I prepared our personal taxes for years until my writing moved from a hobby to a business. That year I sought out extra advice from multiple online sources and in person to make sure what was allowed as a deductible expense. With that information and my record keeping spreadsheet, I then used a cheap tax software (TaxAct.com) to walk me through all of the various forms.
Now that I’m approaching the stage where my income will require quarterly tax payments to the IRS, I’m not ashamed to admit that I have a list of new questions to ask.
Seek out tax advice and get help from someone who knows as much about tax law as you do about deep point of view, motivated character arcs, and marketing a book launch.
Tool #2: Connect with your local chamber of commerce. While federal tax law can be confusing, every state…and even every city within that state has different regulations. Your federal tax professional is likely not aware of everything that affects the operation of a small business at the local level. However, those individuals who actually operate those businesses can provide a wealth of information and most are more than willing to mentor someone over a cup of coffee.
Here are a few questions to raise in that conversation:
- Are there limitations on operating a home-based business in this city? Any extra paperwork to file?
- Do the regulations differentiate between an in-home daycare and an author who independently publishes their books?
- Do I need to register my business somehow with the local government?
- Do I need a sales-tax license if the majority of my book sales will be through Amazon or other retailers?
- How do I calculate and then pay city and/or state sales tax for books sold off my website or in person at a book signing?
- Does it matter where the customer lives or only where my place of business is?
- Is sales tax applicable only for goods sold (like books) or also for services (like coaching or being a virtual assistant)?
As you learn, more questions are sure to arise. Not to mention, the tax advice you receive may shape the way you do business. I got such conflicting information for my area, that I generally point all book buyers toward other stores to purchase my books unless I’m part of a large multi-author or multi-booth event where I don’t need an individual sales tax license. A friend in a town fifteen minutes away debated independently publishing her first novel because of the business-related paperwork she would need to file…while I had none of those regulations to worry about.
I know of many authors who actually pay the fee to join their local chamber of commerce as a business simply for the wisdom, visibility, and even cross-promotion possibilities. If you want to think like a true business, it helps to hang out with other business leaders. And when it comes time for taxes, those same leaders are a rich source of information.