Tax Time of Year Again

Render unto Caesar.

Some of us just want to write. Some of us want to be paid writers. With self-publishing, more of us can pull that off. Awesome. But with money from writing, comes the inevitable consequences. Income taxes.

Note, the following info is only going to apply in the U.S. If you’re anywhere else – I have enough of a headache figuring out my local tax system. Good luck with yours.

If you are making money from writing in the U.S., congratulations! And be prepared for pain. As writers we count as self-employed. Meaning we pay about 12.5% taxes on any profit. It bites.

I can’t help with the bill, but if you’re doing your own taxes, there’s ways to streamline it a little. I’ve done this a lot.

I honestly don’t know if online tax-prep programs will handle this. If you work like I do, making bits of income here, there, and everywhere, you might not have all the neat documents a tax preparer would want. So, to do it by hand, you are going to need:

Form 1040.
Form 1040 Schedule 1.
Form 1040 Schedule 2.
Form 1040 Schedule C (Business Profit/Loss).
Form 1040 Schedule SE (Self-Employment Tax).
Form 1040 Schedule V (for paying taxes by check or credit).
Pencils, paper, calculator, caffeine, and a few hours free.

The 1040, Schedule 1, and Schedule 2 all come in the usual 1040 booklet; around here, the libraries have them available for anyone to pick up. C, SE, and V you’ll need to download from irs.gov.

Start with Schedule C. The numbers you’ll get off there will apply to at least three later forms. Don’t forget to put on your business code; for a writer, it’s 711510 (Independent artists, writers, & performers). When it comes to a writer’s expenses, shipping and office supplies (envelopes, packing tape, etc.) should go on line 18. Printing and other materials, line 38. As a writer you may not have inventory, so don’t worry about it much. Royalties will go under your gross profits.

Note: If you got royalties from Amazon and read the fine print, it says to use form E to report royalties. This is inaccurate. The IRS itself says freelance writing royalties go as business income on schedule C like they always have. Oy.

Make liberal use of the calculator. I can do some multiplication in my head, but I draw the line at trying to multiply long numbers by 0.9235. Too many decimal places to keep straight.

Schedule C will give you the numbers you need for a line on 1040 Schedule 1 (line 3) and another on Schedule SE (line 2). Now you can hack your way through Schedule SE.

On SE, page 1 is important. Page 2 only matters if you want to defer some of your taxes. I ignore it. SE will give you how much you owe for the self-employment tax (goes to Schedule 2 line 4) and a deduction for said tax (Schedule 1 line 14).

From here pick either Schedule 1 or 2, whichever you want to do first. Schedule 1 gives you an amount for Other income (1040 line 8) and adjustments to income (1040 line 10a). Schedule 2 gives you the amount for 1040 line 17, if any (odd taxes like alternative minimum and excessive advance), and for line 23 (adding the self-employment tax to the rest of the taxes you owe).

Now that you have all those other forms filled out, you have the writing-related numbers you need to tackle the 1040 itself. Go for it.

I find it takes me about an hour checking out what forms I need for this year, another to total up all the income and expenses I’ve been keeping records of. Once I have all the forms and info, I like to set aside 2 afternoons. The first I load up on caffeine and use scrap paper to work out all the numbers; takes about an hour, hour and a half. Then I put it down and do something else the rest of the day. Preferably with no numbers.

I sleep on it, then go back and check all my calculations before I fill out the paperwork. Do that, copy all the forms for records, write the check, and with luck it’s over for the year. Ow.

Of course, my end goal is to be paying thousands to the IRS, because that’d mean I’m earning tens of thousands! *Insert evil laughter here.*

…The caffeine high will wear off. Eventually.

26 thoughts on “Tax Time of Year Again

  1. Speaking as someone who makes less than a hundred bucks off writing —

    My understanding is that those of us who don’t make/spend enough to have it count as a business, are asked to count it all of it as “hobby income” and report it as “Other Income” on the main 1040 form. (Years ago, there used to be a minimum, but now the IRS wants to know if you made five bucks, at least if it’s being reported by some other business, which Amazon or Etsy defiinitely would be. Although I’m sure that you’re supposed to report cash income also.)

    The disadvantage is that since 2018, you can no longer deduct hobby expenses. The advantage is that you can scoot a certain amount of “hobby income” under a more reasonable tax rate, if you’re employed. The worrying hing is that the IRS has no definite amount of money that counts as “hobby income” vs. self-employed/business income. (It used to be a definite number.)

    OTOH, you can be making a fair amount of money every year and still count it as a hobby, now, although you probably should not count it as a hobby if it’s big and dependable amounts. The IRS has guidelines for hobby vs. business.

    Shrug. It seems to me that there’s a bit of bureaucratic war going on against ultra-small income sources, like hobbies and the gig economy. I think the IRS is trying to encourage people to become small businesses and deduct business expenses; but some states are not and tax the heck out of businesses. So everybody be careful out there.

    Liked by 2 people

  2. If you’re still a minor and/or otherwise being reported as somebody’s dependent, you can get very favorable terms on hobby income, IIRC. So if you’ve got any little relatives or neighbors who want to earn money, it’s great for kids.

    Liked by 1 person

  3. Also, if you live in a state with no personal state income tax, being self-employed is probably overall better than being a business, because no state business income tax. (Unless you have a lot of business deductions.)

    Shrug. This is why tax specialists make good money. It’s very picky and individual.

    Liked by 1 person

  4. This time of year, I always wish I lived in the Star Kingdom of Manticore. A tax form no larger than a postcard sounds heavenly. (Last year it took about fifteen tries to get it right, due to screwing up the forms fifteen different ways.)

    Liked by 2 people

    1. The trick is that most of the complexity is for some taxpayer’s benefit.
      Just not for every taxpayer.

      If they said “Taxes are 40% of all income, no exceptions” it’d be pretty simple.
      It would also suck.

      Liked by 2 people

      1. They keep trying to go to the “we take all your money, and will give you what we decide you need” method, too.

        Some of the complexity is because folks figure out a loophole that’s just too abusive to let stand.

        Liked by 2 people

    2. Plus side, better standards for compliance cost of taxation.

      Minus side, genocidal lunatics with far too much hardware to play with.

      Wait a second, I’m more or less a genocidal lunatic, and I kind of want that hardware.

      (Seriously, past couple years… I might not have read any Weber in that time, and I’m finding myself more and more impressed with his science fiction work.)

      Liked by 2 people

      1. I‘ve had several flashbacks to the Honorverse last year, most of which can be summed up in two words: the Mandarins.

        The parallels are eerily accurate…

        On taxes etc, our income came from four different companies last year, opposed to one (occasionally two) as usual. One of them still hasn’t sent the form I need to get this done… and we‘re moving in, oh, about three weeks.
        I am NOT packing up my office stuff until the frickin‘ taxes are done, lemme tell ya…

        Liked by 2 people

      2. I once thought of the Solarian League as a somewhat comical parody. But y’know what? The talk of the Constitution being a dead letter, the law being based more on precedent than adherence to said Constitution, and the unelected bureaucracies being the ones really in charge?

        That’s not parody. That’s David Weber having seen the signs a lot sooner than I did.

        Liked by 1 person

  5. I’m one of the folks that H&R Block got the loyalty of with their “file 1040 for free” program, way back when; basically they act as a go-between and secure storage location for me to fill out the papers, then a real accountant goes over it– Dustin in Arizona saved us more than it cost to hire him, because I didn’t know Iowa lets you deduct charitable deductions so our refund went up $140 bucks. (Their “self employed” starts at $90, though.)

    Biggest selling point for us is audit protection.

    Liked by 2 people

  6. That bit about mental math reminds me: have you heard of Moebius Noodles? Which will teach you how to how to make your own manipulatives? I’m asking because you remind me of someone who couldn’t do real math until she learned about manipulatives. Not that I think it would turn you into a human calculator or anything.

    I even bought the pdf of the book. However, I didn’t finish reading it or have the sense to understand how to properly import it to Google Drive, so it’s gone.

    Regrettably, it is not a manual of exercises for the reader to use on themselves. Naturalmath.org publishes no such thing, it seems.

    Like

    1. Um.

      If you want to do something like 5,071.75 x 0.9325, then that x 0.124, then that X…. in your head, and then submit it to the IRS, who have admitted in print they prefer auditing small independent businesses rather than people with the money to fight them, you go right ahead.

      Me, I’ll use a calculator.

      Like

      1. I found back in college that you always use a calculator, unless you’re absolutely certain you know the answer… in which case you slap yourself and then use a calculator.

        Even if you can get to an answer, every step along the way is another chance to screw up or transpose numbers.

        Liked by 1 person

      2. In fact, accountants often use adding machines, or spreadsheets, because not only do they add, but they also keep a record of exactly what numbers you entered for when you inevitably make a mistake.

        Liked by 1 person

      3. There is a use for mental arithmetic in post college skilled math work. If you often do a certain sort of calculation as a rough estimate to narrow down a large space of possibilities down to a reasonable set of choices. Then practicing the math until intuition fast lets someone who is very skilled find some good guesses for where to start doing real calculations.

        Slide rules good, calculators good, spreadsheets good, other sorts of programs good, pen and paper good.

        If you do all your math work mentally, you get screwed up when you have a bad day, and can’t think properly.

        Calculators with memory are nice when you are doing a multistep problem. If you don’t transpose locations you can check your work by redoing the calculation.

        Some programming languages and IDEs can be used as a calculator. Where you can type in the command prompt, or run a script you have written. I think R studio may be this type, but I’ve slept since then. Advantage, some of these can do types of math that are a little more cumbersome in a spreadsheet. Disadvantage, learning curve.

        Computers only naturally do discrete math. If you are messing with anything continuous, your choices are look into discrete approximations, find a program written by someone who did the looking, mess with analog computing, or pencil and paper.

        I used to jump steps, just because I could, and I was too lazy to do everything. I’ve learned to regret that habit, and appreciate how pen and paper makes it easier to figure out when and how I’ve screwed up.

        I’m terrible at everything, but probably most terrible at graphical methods of calculation.

        Liked by 1 person

    2. One of the developers of this method still counts on her fingers. She’s a mathematician. And she just wants people to understand and play with math. Her vision is five-year-olds with just an average level of intelligence learning that an infinite number of objects, when lined up, won’t necessarily form an infinitely long line by watching a teacher cut a piece of paper into thinner and thinner strips without being exactly what it’s meant to prove. After posing the question of what would happen while projecting warmth and enthusiasm but not the answer. And learning calculus without getting angry or confused.

      Based on the fact that the resources they’ve got assume you’re a parent trying to teach your child math or trying to run a math circle for other’s, it would probably take a math circle open to childless adults before it would work.

      I brought this up because I can still remember the post where you said you couldn’t get math and this was the closest I’ve seen to a subsequent relevant post.

      I was doing research that was completely unnecessary for the story I scrapped by 2016 when I found this.

      Tldr; the point is to learn how to make your own math and otherwise play with it, not get absurdly good or even any better at mental arithmetic.

      Sorry about the misunderstanding.

      Liked by 1 person

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