Take a look at 4 more tax mistakes writers make:
5. Failure to take a reasonable salary from an S or C corporation.
Authors or publishers that have structured their businesses as S or C corporations must take a reasonable salary. The salary is subject to income tax and employer taxes (Social Security and Medicare). There may seen to be advantages to taking a low salary and avoid self-employment tax, but the IRS expects an owner to pay himself a reasonable salary according to industry standards and the amount of work put into the business. This issue of unreasonably small salaries has become a red flag to the IRS and a subject of many audits.
6. Depending on your memory instead of written records
Plutarch said, “Forgetfulness transforms every occurrence into a non-occurrence.” If you rely on your memory instead of records or receipts, you are bound to forget some important tax deductions, or worse yet, a customer order. The IRS requires records, especially for mileage to be kept contemporaneously, meaning at the time the expense was incurred and not months later.
7. Neglecting to record mileage
You will be walking away from a tax deduction of you do not keep mileage records. Some business owners keep a mileage log in their cars while others keep track of business trips in a calendar. I make use of Google maps and use the mileage amounts for trips I make.
8. Failure to set aside money to pay income tax, self-employment tax or sales tax
Realize that not all the profit you make is yours to spend. The tax man wants his due. Tax planning with a CPA will keep you out of hot water with the government and let you sleep better at night.
Don’t make these mistakes!
Learn how to run your writing business better from Business Tips and Taxes for Writers by Carol Topp, CPA