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.

29 comments:

  1. Thanks for the tips. I look forward to seeing what else you have to offer this month.

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  2. Both social security and medicare have an employer share. Though it costs me a little more I was glad when the "tax cut" expired that made social security for employers different than employees. That was such a pain. Accountants are awesome.

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    1. That sounds about right. I couldn't remember, but I know it was a lot. Kind of ridiculous I had to pay a tax to go into effectively a retirement account that I have little chance of ever seeing. Accountants are awesome.

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  3. Thanks, Tonja, and we need the practical stuff too. Like accounting. A great start!

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  4. I have an accountant who takes care of the income, because I do indeed make a chunk off my books now.

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  5. I needed this post. A LOT. Bookmarking!!

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  6. Good advice. Looking forward to future posts!

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  7. Thanks for this advice. These are the kinds of issues I never think about but I know they are very important to remember.

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    1. One of my family members started a business and didn't realize they had to pay taxes quarterly and in advance and also had to pay into medicare and sales tax. Tax day was unpleasant.

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  8. Excellent advice. I have an accountant.

    Hugs and chocolate!

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  9. Good tips, thanks for those. Happy A-Z Launch day!

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  10. Do I really have to worry about Accounting? It's the furthest thing from my mind...
    Whatever happened to a writer just writing?
    Thanks for sharing this!

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  11. If only I was on the verge of needing an accountant! Maybe one day.

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  12. I know someone who is self employed and she does exactly the same thing- keeps track of every work related otem bought and deudcts it. Awesome start, looking forward to reading more.

    Dina Mom

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  13. Oh boy. I may need a personal accountant in the future. ;)

    Thank you for stopping by my blog, Tonja!

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  14. It will be a good problem to have ;)

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  15. Sheesh.... I'll never get that right, I just hope to make enough one day where that becomes an issue.

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  16. you can learn that here http://www.acca-apc.com/ .

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  17. I'm not sure I'd get away with deducting a percentage for the salt in the water softener here in the UK, but you are quite right in that even working from home you do have certain allowances against the tax that you pay. A timely reminder that the tax year is almost at an end (5th April in UK) and I do my own tax assessment - oh boy!
    Jude (another A-zer)

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  18. Thanks for sharing this site, it is very informative for the business personals.Keep on continuing with this.tax accountant Intouch Accountants providing Affordable Accounting and Business Advisory Services for Small Businesses in Auckland.

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