Taxes for Writers

Reasonable salary for a S corp

Carol — Tue, 15 May 2012 08:57:55 +0000

The Journal of Accountancy (what we CPA’s love to read!) has a very helpful article on

“Reasonable salary for S corporation owners”

Here’s a few excerpts (for the full article click here) and my plain-English summaries.

…an advantage of an S corporation over a C corporation is that a shareholder’s share of the corporation’s net income is not considered self-employment earnings and therefore is not subject to self-employment tax (13.3% in 2011 and 2012).

(IOW, S corporation status can reduce the Self employment taxes you’ve been paying as a sole proprietor.)

However, if the S corporation shareholder provides services to the S corporation, he or she must receive an adequate or reasonable amount of compensation for these services. The S corporation may deduct the compensation expense and must pay the employer share of employment taxes: 6.2% Social Security tax and 1.45% Medicare tax. The shareholder-employee is responsible for 4.2% Social Security tax (in 2011 and 2012) and 1.45% Medicare tax. The S corporation is also responsible for Federal Unemployment Tax Act (FUTA) taxes. Minimizing these taxes provides an incentive to keep the S corporation shareholder’s wages low and to characterize most of the passthrough income as distributions.

(The owner/employee of the S corp must take a reasonable salary and pay Social Secutity, Medicare and FUTA taxes. Some S corp owners take very small salaries.)

The IRS has the authority to reclassify dividends, distributions, or payments to the shareholder-employee, including loan repayments, as compensation if it deems compensation inadequate or unreasonable.

(The IRS doesn’t like it when you try to take a tiny salary to avoid paying SS/Medicare taxes)

The IRS has posted on its website (tinyurl.com/7kp3yrf) three major sources of gross receipts it will consider when determining reasonable compensation: the services provided by the shareholder, the services of nonshareholder employees, and the capital and equipment of the corporation.

(How to know what’s a reasonable salary? The IRS is here to help!)

Determining if S corp status is right for your business and determining a reasonable salary is where a CPA can really help you (unless you like reading IRS documents!)

You may find my book Business Tips and Taxes for Writers a helpful place to start. Order a copy here. Or schedule a phone consultation with me and we can discuss your options. Contact me here.

Carol Topp, CPA

Warning to S corporations!

Carol — Fri, 11 May 2012 08:53:58 +0000

I read an interesting story in the Journal of Accountancy (well interesting to me, a CPA!) about an owner of an S corporation that serves as a warning to all of you considering S corporation status for your business.

(Here’s a link to the article “Eighth Circuit agrees that CPA was underpaid” if you care to read the details, but is it loaded with accounting-ese)

In summary, a CPA formed a S corp with himself as the sole owner, shareholder, director, and employee. He was paid a salary of $24,000 and took the rest of the S corp’s profits as dividends of $203,651 in 2002.

The IRS requires S corp owners to take a “reasonable” salary and pay Social Security (FICA) taxes on that salary. Dividends are not subject to FICA tax. By calling his profits dividends instead of salary, the CPA didn’t pay FICA tax on $203,651!

The IRS determined a “reasonable salary for this full time CPA with 20 years experience was closer to $90,000 a year, not $24,000 and charged him the FICA taxes on the difference as well as interest and penalties.

As a CPA he should have known better! Really!

This is one of the problems with S corp status. You must still take a reasonable salary for services you provide to the corporation. If you try and take a low salary to avoid paying FICA, you may find yourself in tax court like this guy.

How to know of corporation status is a good idea for your business? Read Chapter 5 Corporations in Business Tips and Taxes for Writers. Order a copy here. Or schedule a phone consultation with me and we can discuss your options. Contact me here.

Carol Topp, CPA

Should You Incorporate Your Business?

Taxes Filed? Now Improve Your Records

Carol — Tue, 08 May 2012 09:40:27 +0000

I preach the importance of record keeping all the time to tax clients, writers, and business owners!

Record keeping is the life-blood of a successful business

Forbes has a get article on

Tax Return Filed? Now Consider Your Records

Here’s an excerpt:

No one likes organizing records. If you just finished your tax return filings the last thing you want to do is look at them again. But now is the perfect time and it pays dividends. Here’s why.

If you’ve ever tried to tell the IRS “I lost my receipt” you don’t want to do it a second time. The IRS has heard every excuse in the book. See IRS Publication 552. You’ll find it far easier if you don’t have to go to the additional effort of proving something by another means.

If you’d rather not read an IRS publication on record keeping, try my easier-to-understand chapter on simple record keeping in Business Tips and Taxes for Writers.

For many busy writers record keeping can become an
unnecessary ordeal. With some advanced planning this can easily
be avoided. I recommend that authors keep their system as simple
as possible and expand their bookkeeping needs as their business
grows. The system described here uses single entry bookkeeping,
not double entry bookkeeping that is taught to accountants. Record
keeping can be easily recorded on paper, in a spreadsheet program
or on a computer.

-Chapter Nine: A Simple Bookkeeping Method from Business Tips and Taxes for Writers

Carol Topp, CPA

Author to Business Owner: Dorothy Cadet

Carol — Mon, 07 May 2012 08:00:34 +0000

Author to Business Owner is designed to provide first-hand business tips for any writer. Each special guest has graciously imparted knowledge of their writing business in hopes of encouraging fellow authors to grow and manage their own businesses.

This month, I am excited to have Dorothy Cadet to share her experiences with us, and how she manages her writing business. A little background on Dorothy before we begin, she earned her Bachelor of Arts degree in Psychology from Columbia University, spent time in retail and real estate sales, and is currently a columnist for Examiner.com and published author! What drew Dorothy to a career in writing? As she discovered a love for helping women live practically and reaching their maximum potential, Dorothy worked for nearly 20 years as a teen and youth mentor, while seizing the opportunity to minister to women. She enjoys speaking, teaching, and training women in all environments. Through her role as a facilitator and speaker, she has spoken to both Christian and secular mom’s groups nationwide. Dorothy decided to write her book, “Laundry Can Wait,” as an additional resource for moms everywhere. She is with us today to share wisdom with other authors.

Welcome, Dorothy! Now that we know a little of your background and how you started writing, we would love to hear about your business. What have you learned from your writing business?

I’ve made many mistakes, of which I say, they weren’t mistakes, but building blocks! One was to not trust myself, but to trust what someone else said I should do. When you’re navigating the entrepreneurship field, you have to lean on others’ wisdom, guidance, and warnings. Sometimes, they are so used to doing things the “traditional way,” that they leave little to no room to step out and try a different track. I learned to trust, but verify. I take what is said, then I research it out myself and see if what I would like to do has been done, and if not, how I can take the advice I was given, then craft it into my own path, or create one that makes my vision come to life.

What do you love about being a business owner?

CHOICE! Being a business owner is a rewarding path. You work harder to see your dream achieved than you ever would at a “job” or other line. You are also able to craft your own plan of success and use your resources to attain it, all without limitation or someone telling you “you can’t.” If you are told “can’t,” you then get the opportunity to prove them wrong or heed their advice.

On the other hand, what do you hate about being a business owner?

RISK! You may get the reward of a business, but that means you also take all the risk in your business. Even the best laid plans fail or hit a roadblock, and sometimes you’re stuck not knowing what to do or how to get past it. You are also the one who has to deal with everything (disgruntled customers, suppliers, etc.), all while still having to run your business.

Very true! Now, I have to ask, have you ever hired a CPA? How does he/she help you?

Yes, I have hired a CPA in the past for other business ventures and he gave us the most sound piece of advice that we chose not to follow, which was “get a job!” In his 40 years of experience, he felt that what my husband and I were doing was risky and we didn’t have the background or capital to keep it going. We made it for three years without heeding his advice before we finally succumbed and my husband got a traditional job. The youth of our ideals hit against the wisdom of his years and eventually, we made it all work and we found ourselves in the black, instead of the red. At present, I don’t use a CPA, but we do have a bookkeeper who monitors our expenses on a semi-annual basis to ensure we are meeting deadlines.

In closing, do you have any last advice for other authors about being a business owner?

Being a business owner is a big step and requires research, time, and capital. If you go the traditional route, marketing and many of the woes are built in and your worry factor is minimized. Hopefully, you have been able to negotiate a good package. However, if you are self-published, read other books on marketing and find as many “free” ways to advertise as possible. When you do book signings, don’t just sit there, get up and engage the people. Let them pick up the book, begin reading it, and talk to them. Learn to be relationally based so that your message can come through and you are meeting a need!

We appreciate your time, Dorothy! To learn more about Dorothy and her writing business, you can visit her website, www.dacbooks.com. While there, be sure to take a look at her book, “Laundry Can Wait,” a conversation and testament to the strength of women and the pivotal role they play in the lives of their families. The book invites readers to experience goal-setting, relationship building, and the important of memories and balance between the roles of woman, wife, and mother, something we all need! “Laundry Can Wait” can be found on her website, Amazon.com, and other retailers. Dorothy brings up an excellent point about the importance of marketing for self-published authors. I recently spoke at the 2012 Ultimate Homeschool Expo on how you can be a self-published author. Feel free to contact me with any questions you may have!

Carol Topp, CPA

Q&A: Is there a way to market my book for free?

Carol — Mon, 07 May 2012 08:00:30 +0000

We welcome back ZLS Publishing today, bringing us more great advice for authors regarding the marketing of their books:

“I’m in the process of finishing up my book but I’ve recently lost my job. From what I’ve heard, you need money to have a marketing budget and it costs money to market a book. My problem is because of my financial situation, I really don’t have the money to spend on marketing. Is there anyway I can market my book for FREE?

Congratulations on finishing up your book and we’re sorry to hear about your financial situation. Yes, nowadays, you can market your book for free. Before the days of Facebook, Twitter, Pinterest, and the list goes on and on, a marketing budget was needed and a large one. Now, thanks to all the free tools you there, those with little to no money can get a large reach. The free places to market your book are Facebook, Twitter, Pinterest, LinkedIn, Gather, your website, just to name a few. Although, keep in mind you can utilize all of these free tools but if you aren’t marketing on a consistent basis, the cost of the tool won’t matter. It’s not the cost of the tool that matters but your use of the tool that matters.

Take advantage of free social media, authors, and watch your book spread like wildfire!

Carol Topp, CPA

Q&A: What does a Publisher do for the Author?

Carol — Thu, 03 May 2012 08:00:09 +0000

Previously, ZLS Publishing has been answering common questions authors have about their books. Take a look at what they have to say about the benefits of publishers:

“What exactly does a publisher do for the author? I’ve heard different things and I am confused. Please clarify.

Traditional publishers operate very differently from self-publishing companies. A traditional publisher handles all of the publishing tasks and can get wide distribution in bookstores and other channels. Publishers do some publicity, but authors are still mostly responsible for promoting their books. Self-publishing companies offers services such as book printing, editing, typesetting, etc. Some also offer marketing services. The main difference is with traditional publishing, there is no cost to the author, whereas with self-publishing, there is a cost to the author.”

Authors, find more great advice like this in the pages of ZLS’ magazine, Pens and Profits, online!

Carol Topp, CPA

How You (or Your Child) Can Be a Published Author LIVE (& free) 5/2/2012

Carol — Wed, 02 May 2012 12:51:00 +0000

Join me LIVE Wednesday May 2 at 11 am ET as I present

How You (or Your Child) Can Be a Published Author

at the 2012 Ultimate Homeschool Expo

This Expo allows you to listen to over 20 sessions live for free.

Or buy a ticket and listen to over 80 workshops from speakers, such as Jeannie Fullbright with Apologia, Cathy Duffy, Maggie Hogan with Bright Ideas Press, Felice Gerwitz, and SO Many More!

My sessions include:

How You (or Your Child) Can Be a Published Author Listen LIVE May 2 at 11 am ET. Click here

The IRS and Your Homeschool Organization Buy a ticket to hear this pre-recorded session

What Your Teenager Can Learn from Starting a Micro Business Buy a ticket to hear this pre-recorded session

I hope lots of you can join me at the Ultimate Homeschool Expo 2012 live!

Carol Topp

Q&A: Can I Typeset My Book Using Word?

Carol — Mon, 30 Apr 2012 08:00:05 +0000

Welcome back to our short series featuring common questions on book publishing and marketing. Today, we learn the best ways for authors to typeset their books:

“I see you a lot on the web talking about typesetting but I also see a lot of other folks who claim to typeset their books using MS Word and say that I can typeset my book using Word. I am confused? Can I do it myself in Word or should I hire a typesetter?

The problem is that MS Word is the direct descendents of typewriters, not typesetting systems. It was originally meant to mimic the “look and feel” of the familiar typewriter. This was partly intended to calm the anxieties of the millions of secretaries and assistants who were being asked to switch to computers.The explosion of interest in self-publishing has led to an unprecedented number of books being produced using typewriting programs such as MS Word. If you want your book to look the best it can, if you want a book that looks like a book and not like the report you did for English Composition, it’s good to know the difference. Sure, you can “typeset” your book on a typewriter or rather MS Word, but then again, why would you want to? There is a reason why typesetting programs such as InDesign and Quark were created. If books were meant to look like English papers then that would be the standard, but no matter how many self-published authors do their books using MS Word, the standard will always be typesetting programs. In our professional opinion, you should hire a typesetter, as they know and understand books.”

Courtesy of ZLS Publishers; thanks for the tip!

Carol Topp, CPA

Pricing your book for retail sales and discounts

Ebook or print for nonfiction? Share your opinion and win a copy of my book

Carol — Thu, 26 Apr 2012 14:52:39 +0000

My publisher (Media Angels) tells me that the paperback version of Business Tips and Taxes for Writers is selling better than the ebook version, much to her surprise.

So she is asking: Which do you prefer for a nonfiction title that you plan to use a a reference, paperback or ebook?

Enter your opinion here and you may win a copy of my book, Business Tips and Taxes for Writers.

My opinion is that if the ebook is short enough (under 100 pages), I’ll read it on my Kindle Fire. I do enjoy reading fiction on my Kindle. For long nonfiction, I like to mark in it, highlight passages, and bookmark with post it notes, so I’ll buy paperback. Recent example: I’m reading In the Company of Cheerful Ladies by Alexander McCall Smith on my Kindle Fire, but I bought a paperback version of Mom Blogging for Dummies.

Q&A: Should I Pay for a Review?

Carol — Thu, 26 Apr 2012 08:00:18 +0000

Our next short series features common questions authors have on publishing and marketing their books. Take a look at this recommendation for book reviews:

“I know that reviews are necessary for an author’s success. I also know that some places and reviewers charge for reviews. Should I be paying for a book review? Does it really help me with sales?

I would recommend seeking free reviews first. With the paid ones, you are sometimes paying to have your book listed on a website where book reviewers can request a copy. Some paid reviews are really expensive and promise listings on important sites – until you read the fine print and see you’re in a separate listing for paid reviews that is nearly invisible to librarians and booksellers. Some reviews like a blurb off a Kirkus review might help it sell, but the keyword is might. The other problem with a paid review is that there is no guarantee of a good review.”

Thanks to ZLS Publishing for the advice! Be sure to check out their online magazine, Pens and Profits, as a great resource for your writing business. I am grateful to have been featured in their April/May edition, and can well attest to its excellence!

Carol Topp, CPA

No related posts.