Taxes and authors: What you should know in 2021
In his TAA webinar presentation, “Taxes & Authors: What You Should Know in 2021“, Robert Pesce, a partner with Marcum LLP, provided guidance on when it is beneficial for authors to form a business entity, strategies for managing business income and expenses, and how the qualified business income deduction (QBI) applies to authors.
As soon as your authoring efforts produce income in excess of $400, you are officially running a business – whether you define a business entity or not. According to Pesce, any income in excess of $400 must be reported on a Schedule C filed with your tax return and is subject to self-employment tax.
While the option exists for forming a business entity such as an LLC or S-Corp, Pesce noted that from a tax perspective, the LLC holds the same obligations as a sole proprietorship and the advantages available through an S-Corp formation are not realized unless you make at least $300k-$400k in annual income as an author.
That said, there are some ways to ensure that you maximize your tax advantages of your authoring business efforts.
1) Maintain a dedicated checking account and/or credit card for business purposes
Regardless of whether you form a business entity, having a specific account where income is deposited and where expenses are withdrawn can save time and effort at tax time by not having to separate personal and business expenses in a shoe box full of receipts or by scrutinizing your bank statements.
2) Explore all possible tax deductions
If your income warrants itemizing deductions rather than taking the standard deduction, you will want to deduct all possible business expenses when filing. Some common categories authors should consider are:
- Commissions paid to literary agents
- Fees paid to accountants and attorneys
- Office supplies
- Travel expenses
- Meals and entertainment expenses
- Local transportation expenses
- Professional membership dues
- Home expenses (based on a use percentage of dedicated workspace in a home office for mortgage, rent, and utilities)
- Media research (books, Netflix, etc. used for the purpose of learning material necessary for writing)
- Cable/phone/internet (not included in utilities above, deducted at 100% of cost)
3) Qualified Business Income deduction (QBI)
As a recent change to the tax law, this deduction is available to authors. Pesce notes that while it gets more complicated for authors whose joint income is greater than $325,000 per year, it is worth exploring for additional tax savings when filing.