Over the years, I have met some of the most interesting people at KCWC.  Each person, whether an attendee, a faculty member, or a member of the planning committee, brings his or her own unique background and knowledge to share with others.

Early in her career, Carol studied engineering and worked as a cost analyst for the US Navy before earning her CPA license.   As an accountant, she specializes in tax preparation, small/micro business accounting, and nonprofit accounting.

Although she has a long list of accomplishments, what impresses me most is the value she places on helping others.  Carol shared with me that she is looking forward to helping writers at every stage of their career to make sense of the business aspects that so many of us find intimidating.  (The KY Christian Writers Conference in June  20-22, 2013 in Elizabethtown, KY) Not only is she approachable for general questions, she has invited participants to bring a copy of their most recent tax returns for individualized assistance.

–Cathy Robinson, KCWC Committee

I enjoy several LinkedIn groups for writers and authors, but sometimes the information shared there about taxes can be outdated and misleading, even if well intended.

Here’s an example from the Authors, Writers, Editors, & Publishing Professionals group on LinkedIn.

The tricky part has to do with when you deduct certain things as expenses. If you do three years of research for a book—perhaps traveling to exotic places to visit research libraries—you don’t get to take those expenses in the years when they are incurred and declare a loss. They get amortized over the expected life of the book following publication and deducted from your earnings then. There are specific rules, and a good accountant will be familiar with them.

-Dick M.

Dick’s information is outdated. In the Tax Reform Act of 1986 Congress changed the rules to became more sane!

You can deduct research expenses in the year they occurred!

You no longer have to amortize research expenses over the life of the book (as if we know the life of any book!)

So be careful out there, folks! Dick was well meaning, but his information was out of date by about 27 years!!

Get advice on taxes from a currently-licensed CPA (who have to take 40 hours on continuing education every year to stay up to date!).

A good place to start is my book Business Tips and Taxes for Writers. Order here

Carol Topp, CPA

I’ll be interviewed on Monday April 29, 2013 by Judith Briles for her popular podcast Your Guide to Book Publishing.

We’re going to talk about the business side of writing and publishing.

Stuff like:

• When does a hobby become a business
• What business structure works best for a author?
• Should a writer consider LLC status?
• How hard is it to launch a publishing company?

The podcast will be aired Thursday May 2, 2013 at 6 pm ET.

Carol Topp, CPA

I’m helping them understand Limited Liability Company (LLC) status and if it’s helpful for writers.
 

I really enjoy speaking to writers groups. To invite me to speak to your group, either live or via Skype, please contact me.

Here’s a list of topics that are popular with writers: Speaking topics

Carol Topp, CPA

Carol,

I have written a book on dolphins that I plan to sell as a self publisher this coming winter. I would like to use Kickstarter to help me with the initial editing/art/photography/printing costs, and plan to use all the money raised to support my grassroots political sea-environmental efforts. It may seem unlikely, but I believe that with the projects I’ll be outlining that I may tap into a large population willing to give donations as gifts, even though I’m not setting up a non-profit or anything.

Can you provide likely guidance?

Max

Max,

I’ll do my best to answer your questions, but I have to include this disclaimer:

The Internal Revenue Service hasn’t published specific guidance on the tax consequences of receiving money through crowd funding sites like Kickstarter.

I’ll also explain that I am a very conservative CPA. I do not take risky or unsupported positions. You may get a different answer from another CPA or tax professional.

Crowd funding income can be treated as the following:

1. A donation to a 501c3 tax exempt charity.
2. Investment in a business by an investor seeking a share of ownership (called equity owners)
3. Gift given by an individual to an individual. Gifts are typical when no business or potential profit motive is evident. Examples of gifts include a wedding, funding an adoption, helping a family whose house was destroyed by fire or a person with a medical illness.
4. Taxable income for a for-profit business. Most businesses give a reward in exchange for the income. This reward may be considered a sale of a good and subject to sales tax in your state (and you thought all you had to worry about was federal income tax!)

From what you explains #1 and #2 do not apply to you. It is my opinion that #3 Gift does not apply to your situation of funding your book project.

#4 taxable income is the only option that applies to your crowd funding campaign.

Here is my disclaimer:

Nothing contained in this email was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code, as amended; (2) any written statement contained on this website relating to any federal tax transaction or matter may not be used by any person to support the promotion or marketing or to recommend any federal tax transaction or matter; and (3) any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter contained in this website. No one, without our express written permission, may use any part of this website in promoting, marketing or recommending an arrangement relating to any federal tax matter to one or more taxpayers.

Carol,

When do I need to hire a CPA, like yourself?

Good question! Here are a few times when the expertise of a CPA (Certified Public Accountant ) can help a writer.

• You receive a letter from the IRS or state department of taxation
• You hire an employee
• You hate record keeping and want someone else to do it
• You know there are more tax deductions that you could be taking
• Tax forms confuse you
• You hate tax preparation and want someone else to do it
• When you need help setting up a record keeping system
• When you need to be trained in QuickBooks
• You need advice on the pros and cons of Limited Liability Company (LLC) status
• You have heard that you can reduce your income tax by forming a corporation
• A friend is audited for something that you have been doing for years.

You can learn a lot from reading my book Business Tips and Taxes for Writers

or arrange a telephone consultation

or schedule me to speak to your writers group (live if you are within 2 hours of Cincinnati, Ohio or via Skype if you are further away).

Carol Topp, CPA

There are possible tax advantages to NOT being a business when you publish. As I recall, under the US Tax Code you can write off losses on your writing and take your income as a hobby, which you may do for three years before they insist you start paying as a self-employed person, with stricter rules on deductibles and a sizable SSSE tax as well. Talk to your tax preparer about the ramifications. Unless you had an instant self-published blockbuster on your hands, you may find it easier and cheaper to continue your writing, for tax purposes, as a hobby only.

Peter

My response:

Sorry, but Peter has it wrong. I’m a CPA and an author.

I should be working on tax returns right now, but I had to correct some errors in Peter’s comment.

The are no tax advantages to declaring your book business a hobby. Hobby income is fully taxable, but the expenses are rarely deductible. Hobby expenses are deducted on Sch A Itemized deductions subject to a 2% of Adjust Gross Income floor, meaning that only the expense above 2% of your AGI are deductible. So if you don’t itemize, you cannot deduct your hobby expenses. If you can’t get over the 2% AGI threshold, you can’t deduct hobby expenses. Yet you’re still supposed to report all the income!! That’s why a hobby business is not a good tax situation.

Hobby losses are not deductible. Only losses from a business are deductible and can offset other income.

Also, you do not have “three years before they insist you start paying as a self employed person” as Peter wrote. Peter is misunderstanding an IRS guideline on when an activity is determined to be a business, not a hobby.

(and by the way if you have self employment income from a business, you pay Self Employment tax from day one, not after three years)

The IRS states (http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions): “The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.”

That means that if you make a profit, your activity will be deemed a business-which is what you want. If you are not showing a profit for three years, then read the IRS website to see if other factors come into play so that your writing can be treated as a business and not a hobby. You can losses for many years and still be considered a business.

Please folks, get accurate advice. My website will help TaxesForWriters.com. Understand that hobby income is fully taxable and rarely are the expenses deductible. It is usually advantageous to consider your writing as business, not a hobby.

Read the first chapter of my book, Business Tips and Taxes for Writers on “Writing as a Hobby.”

OK, I’m headed back to doing tax returns!

Carol Topp, CPA

I have one self-published book but I would like to publish more and within 5 years I want to incorporate a self-publishing consulting aspect of my business. In the event that I should become successful within a few years, would you suggest that I switch over to an s-corp? Is this the one that is subject to double taxation? If so, how would the double taxation apply to me as a writer and consultant?

Melisha,
An S corporation is not subject to double taxation. You’re thinking of C corporations that distribute dividends. The corporation is taxed and then the shareholders pay tax again on the dividends they receive.

S corporation status is a possible option for when your business grows to publish other writers and those authors bring in income. But if all the income is done by you (self-publishing your own books and consulting), then S corporation status will probably not bring any tax benefits over being a sole proprietorship.

The reason is that an S corporation owner needs to take a salary for the work they personally perform.

I cover the pros and cons of S corporation status in my book Business Tips and Taxes for Writers.

Carol Topp, CPA

I had a great interview with Sonia Marsh of the Gutsy Indie Publishers on Facebok.

Sonia is an author and had questions on:

• what tax deductions she could take for travel, and meals
• using Quicken or Quickbooks for record keeping and what’s the difference
• sales tax and Createspace

I’m helping them understand if having business losses mean you are a hobby writer.
If you show losses as a writer for 3 years in a row will the IRS classify you as a hobby writer?

Carol Topp CPA is the author of Business Tips and Taxes for Writers

Filmed at Sisters in Crime Columbus OH SICCO writers group.
 

 

I really enjoy speaking to writers groups. To invite me to speak to your group, either live or via Skype, please contact me.

Here’s a list of topics that are popular with writers: Speaking topics

Carol Topp, CPA