Accounting Tips for Authors

~ Jessica Rose

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If you're an author, you technically run your own business. All the work you put into writing a book and arranging for it to be published serve as the tasks that make up your day-to-day operations, with our post The Power of Presence finding that additional participation in promotional activities like book launches is crucial for your overall success. And though you may enjoy accomplishing key business responsibilities like this, one critical aspect of running your business you might not particularly like is accounting.

Yet despite how daunting it can be, it's crucial for keeping you afloat. Not everyone gets paid the same as full-time authors with established followings: an income study from the Authors Guild finds that they annually earn an average of $2,000 before taxes. That's a far cry from the estimated $70,000 the BLS reports authors earn every year, which is why many turn to non-book-related jobs to get by.

That's why learning more about accounting is so important. Knowing where your money comes from and how you spend it to promote your past, current, and future works can be vital to ensuring your success as an author. 

Don't know where to start? Try these tips:

Learn the basics

Accounting involves religiously recording your income and expenses, or, as they say in the biz, your assets and liabilities. Keep all receipts related to the resources you buy for writing—whether you're getting a new laptop or paying your publisher—as well as your royalties and any payments you receive for things like speaking at industry events. Though it's ideal to use a balance sheet to track your basics, using accounting software like Xero can help if you want to automate the process. 

In doing so, however, you'll want to separate your business finances from personal ones. That includes dividing the income you make as an author from any other jobs you may have. You'll want to keep this tip in mind, as it can be especially easy to account for expenses made for things like writing materials and non-book-related purposes. When that happens, you can't accurately tell how much you actually earn in a month, which will make it more difficult to accomplish other accounting tasks like filing your taxes. Therefore, it's best to open a unique bank account for your work.

Consider your income sources

Accounting can be more complex for authors because of the different ways royalties can be calculated. Traditional publishers usually take the minimum cost of publishing your book, subtract it from your selling price, and multiply that amount by the profit split percentage they share with you. The process is a little different for self-publishing, with some giving authors 100% royalties. It'll be even more challenging to track your income if you use publishing platforms like Inkitt which release exclusive content for readers via subscription. Doing so involves offering different payment tiers and allowing people to sign on or opt-out whenever they wish, which can make accounting more difficult. To gain a better overview of your financial health, you'll thus want to carefully evaluate your income sources depending on how you earn money.

In these cases, accounting tools can help. SOFTRAX's subscription billing software can help automate the process of setting book prices, delivering invoices, and receiving payments. That can streamline the process of accurately tracking how much you earn, whether you're working with a publisher or through a subscription model, and even if you plan to raise how much your books cost over time. Using such tools can also make it easier to spot discrepancies in royalties and subscription payments so you can address them as soon as possible. That can help with the next step:

Analyze your cash flow

The main goal of accounting is to see how well you're doing from a financial standpoint so you can plan ahead. That can be crucial for authors, especially when it comes to deciding whether it'll be sustainable to start writing full-time or determining if a book's current selling price makes up for the money spent on things like editing, cover art, publishing, and promotion. To achieve that goal, you'll want to understand three main accounting reports: net income statements, cash flow statements, and balance sheets.

Thus far, you should already be familiar with balance sheets as tools for viewing your assets versus your liabilities. Net income statements take that further by telling you how fast you're earning money. From here, Investopedia explains that cash flow statements complement these two by showing you how well you're managing your income and how quickly you can pay what you owe to the likes of your editors and publishers. In other words, they're crucial if you want to know how long you can survive with your current funds before you have to publish another book or take up a day job. Accounting tools like QuickBooks offer cash flow features if you don't want to draft these statements manually, so you can use their insights to plan your next steps in the publishing world or draft a new budget that suits your writing needs. 

File your taxes

Of course, authors also need accounting to accomplish another intimidating financial task: filing your taxes. You've separated your work and personal expenses, and the same logic applies here. The IRS considers authors to be self-employed because they earn money from products—namely, books—rather than employers, so file your taxes like you're a small business. If you live in a state that requires it, the main thing you'll have to pay is income tax. You may also be subject to self-employment tax if you earn more than $400 annually after deducting your writing expenses. The only exception is if you don't write books as your main source of income. You won't be considered self-employed in this case, but you will have to report the infrequent royalties you get on Form 1040 or Schedule E.  

There are a few other things authors should keep in mind. If you sell your books online to an international audience, you'll have to report that to the IRS. You can also take advantage of a number of tax deductions, as business-related expenses for writing can include things like paying for editing and traveling to a book launch or publishing event. It's thus vital to assess who buys your books, record every expense you make, and track every payment you receive. More importantly, research your local tax laws. The IRS is releasing free tax preparation software in over 13 states this year, which you may want to use to simplify these tasks if it's available to you. Meant to replace tools like TurboTax, it can help you more clearly establish your tax situation and file accordingly.

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