SPQ 054: How to Determine the Tax Deductions for Your Author Business

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Typing numbers for income tax return with pen and calculator

The Question

Alex Kirby of the “Life After Football” blog asks: When it comes to itemizing deductions on your business taxes, do you consider the entire price of the book as revenue, then deduct the cost of printing and whatever Amazon takes out before you get your cut, or do you only start with the royalty you get for each book? For example, if I have a book that sells $19.99 and costs $2.50 to print, do you deduct the $2.50 as an expense?

Biggest Takeaway

Steve’s Answer

Self-Publishing Questions has been on hiatus for two weeks. Steve had a rough transition when he got home from hiking Mount Kilimanjaro, plus he had some trouble getting back into the swing of things in terms of motivation. He apologizes for the unscheduled break.

From now on, the podcast will run Monday, Wednesday, and Friday.

Steve is not a tax professional, and his only experience with taxes is as a sole proprietor, so he recommends talking to an accountant or tax attorney. There’s not much you can do for 2014 now, but you can get a head start on the 2015 tax season by meeting with a tax professional sometime this summer.

Amazon issues a 1099 for each country. If you generated income in the United Kingdom, Brazil, and the European Union, you’ll get 1099s for each of those areas. You get a 1099 because you are a freelancer, not an employee of Amazon. With Amazon, you’re taxed on the net—what you actually get—not the gross. If you generate $2,999 total sales and Amazon gives you royalties of $2,100 over the year, you get taxed on $2,100, not $2,999.

You need to do a tax return for your entire business, not each of your individual books. You add up all your royalties and subtract your deductions. This means you add up royalties from Amazon, ACX, Kobo, CreateSpace, iBooks, Nook, Amazon Associates, affiliate networks, and other sources of revenue.

Deductions are expenditures designed to generate profits. You can’t go out to dinner and deduct it as a business expense. You must be able to prove it was for business purposes.

Here are some of Steve’s deductions:

  • Cover image design
  • Editing
  • Formatting
  • Fiverr gigs to promote the book
  • Professional services (tax/legal)
  • Marketing (Facebook ads, AWeber, email marketing)
  • Web hosting
  • Paid book promotions
  • Home office
  • Health insurance, if you paid for it yourself

Your home office space must be dedicated to your business to qualify as a deduction.

You could deduct the cost of conference registration, business travel, meals and entertainment for business purposes, and professional education. Definitely talk to a tax professional before you take any of these deductions.

When you deal with contract labor—cover designers, editors, formatters—you have to issue a 1099 if you pay the same person over $600 in a single calendar year.

Don’t forget to talk to a tax professional about your tax strategy. It costs a few hundred dollars, but you’ll get valuable advice, and you can deduct the fees on your tax return.

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