Tuesday, April 1, 2014
The Business of Writing: Accounting
I know Accounting isn't the most interesting topic to start off with for the A to Z Challenge. But if you are treating your creative work as a business (which I'm recently convinced we should be doing), keeping track of the money you spend is everything if you want to reduce the tax on the amount you earn as a writer.
A few years ago, just before I injured my leg, had my last baby, and the economy took a hard dive, I started my own software consulting businesses. I used an accountant and learned from her the ins and outs of starting a small business.
The key to succeeding financially, besides getting work, was keeping track of receipts to be used as deductions, including household expenses since I worked at home. Based on the square footage of dedicated work space in my home, I was able to write off a percentage of things you wouldn't think have anything to do with it, like homeowner association fees and the cost of salt for the water softener.
One of the most important things I learned from my accountant is that I had to pay the employer portion of the tax for Medicare or Social Security (I don't remember which). The bottom line is this: when self-employed, I had to charge significantly more per hour to cover the cost of that tax. Otherwise, I would have made less in the end.
As creative writers we can't set our fees in the same way, but it's definitely something to be aware of. If you are on the verge of making money with your writing, make an appointment with an accountant right away so you don't spend the money you will need to pay in taxes.
I'm no accountant, so don't take my word for it. Get a CPA or go to the small business association web site for your area and/or the IRS web site.