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Tax Basics for Freelance Writers and Self-Published Authors

Tax Basics for Freelance Writers and Self-Published Authors
Ines Zemelman, EA
26 August 2021

Making a living as an author is a lovely thing, save for the small matter that it may result in some additional tax issues. But it's worth it to put up with those minor annoyances in exchange for the incredible financial and professional freedom that being a writer may give. Especially if you do some thorough planning ahead of time to make life easy when it comes time to filing taxes as a freelancer every spring.

Even if you handle your taxes with shoeboxes full of receipts and a gallon of coffee, there are techniques on how to do taxes as a freelancer that make sure that you get the most out of your author income each and every year. Just keep in mind that a little planning and discipline throughout the year will save you hours in April!

You must disclose your writing income on your taxes as a professional author, and the system is slightly different from reporting money earned from a day job. You'll also have to pay self-employment taxes if you've earned more than $400 from your writing this year. All of this necessitates some thoughtful consideration in order to avoid any unexpected shocks beyond the April deadline.

When you're self-employed, there are a lot of moving aspects to deal with, but keeping track of your taxes as a professional writer doesn't have to be difficult. Hopefully, this guide can help you get on track.

Do Freelancers Pay Taxes?

When you are employed by somebody else, they pay half of your Social Security and Medicare taxes but, when you work for yourself, you are responsible for paying all of these taxes. The self-employment tax is what it's called.

The amount you owe—15.3 percent for the 2020 tax year—is calculated using the net amount of income you arrived at after filling out Schedule C. The IRS, on the other hand, returns a little bit. On the first page of your tax return, you can deduct half of your self-employment tax, lowering your overall taxable income.

You may not have many 1099-MISC forms to stay on top of all of your money from publishing books with a single publisher, but you should still obtain one from the organization with which you published. This revenue is also reported on Schedule C.

If you worked a normal job for the year, you'll only have to pay self-employment tax on the percentage of your earnings that you reported on Schedule C. This is a business loss if your expenses exceed your income from the book's release. Even if you got that money from an employer, it can help you minimize the amount of money you have to pay taxes on.

Schedule C

You probably won't have to pay taxes on all of your writing earnings. To calculate your taxable income as a self-employed freelance writer, you'll fill out a freelance tax form called Schedule C. List your business's revenue and expenses on Schedule C. The following are some possible costs:

  • Internet
  • Supplies like printer paper, and ink
  • The laptop that you’re using
  • The software for the computer
  • Mileage, meals, and entertainment
  • Whatever is “ordinary and necessary” to help you run your writing business

These expenses are subtracted from your overall business income, and the remainder is the amount you claim on your tax return as self-employed income. Keep accurate records of all company expenses so that you can give them to the IRS if requested.

When to Pay Freelance Taxes

If you plan to owe at least $1,000 in taxes this year, the IRS recommends paying taxes quarterly. Because taxes on your freelance income aren't withheld throughout the year, you'll most likely need to estimate your taxes for the following year and pay the IRS quarterly. So, how do you know if you need to do this or not?

If you only make a few thousand dollars or less each year from freelancing, you can definitely avoid making estimated tax payments and instead record your freelance income when you file your tax return. However, if you expect to owe $1,000 or more in taxes, Form 1040-ES can help you anticipate how much you'll make throughout the year and then calculate your anticipated taxes based on your forecasts.

If you underpay your projected tax, you'll have to make up the difference when you complete your annual tax return. Freelancers, like everyone else, must file a yearly tax return by April 15th. If you overspend your anticipated tax, on the other hand, you will receive a tax refund for the difference.

Self-published Author and Freelancer Tax Deductions

What are the tax deductions for self-published authors? Keep on reading below to find out what freelancer tax deductions are!

1. The Home Office Deduction

As a freelancer, you most likely set up shop in your house every morning at your desk. As a result, depending on how much of your house you use for work, you may be able to claim a home office tax deduction. For example:

You can deduct 15% of your mortgage principle or rent payment, utilities, and insurance if your dedicated work area takes up 15% of the total square footage of your property.

However, if working at the kitchen table is your habit, you're out of luck because you're likely using that space for other purposes in addition to your writing career. Empty out that extra bedroom, set up your workplace supplies and equipment, and work in that space.

2. The Self-Employed Health Insurance Deduction

If you work as a freelancer, you most likely pay for your own health insurance. Even if your policy covers your spouse and kids, you can likely claim a deduction for the full cost of your premiums if you're not covered by employer-sponsored coverage. The policy must be written in your name or the name of your company. This is an adjustment to your income on the first page of your tax return, not a Schedule C deduction.

Ines Zemelman, EA
Founder of TFX