This is not tax advice and I’m not a tax or accounting professional, but I do know that there are things that writers can do to reduce their taxes. I’m only familiar with the Canadian tax system but I’m sure there are lots of analogous rules in other countries.
As a writer, I’m self-employed. That means I can take advantage of deductions that were not available to me when I was employed. I group them into 3 categories.
Your income from book sales and royalties can be reduced by business expenses. What do I include under business expenses?
- Office expenses: paper, printer toner cartridges, mailing costs, bank fees, internet , accounting fees, a new laptop (amortized over 3 years), and any other expenses related to your business.
- Marketing expenses: cost of my website, cost of going to bookfairs, bookmarks and other giveaways, posters, online ads, and costs related to a book launch (eg., I gave out some nibbles).
- Writing and publishing costs: editing printing, shipping, cover design, purchasing ISBN numbers (free in Canada).
Home office expenses
I maintain a home office, so I am allowed to claim a portion of costs related to maintaining my home as a business expense. There are eight rooms in my house and my office occupies one of those rooms. So I claim 1/8 of the following costs.
- Mortgage interest
- Property taxes
- Property insurance
- Utilities (electricity, heating, water)
This is a tricky one in Canada. The Canadian Revenue Agency expects you to maintain a log separating out your personal and business car use. If you are audited they will expect to see your travel log.
What I do is record all my business travel monthly including the date, where I went and how far I traveled. I look at my odometer at the start of the month and the end of the month and calculate how much combined travel I did. Then I add up all the business travel.
At the end of the year I will have a total for all combined travel and business travel. I calculate what proportion of my total mileage was business travel (eg., 22%). I apply that number against all my car expenses. For example 22% of gas would be business related. You can included.
- Gas costs
- Maintenance and repairs
- Interest on car loans.
- Depreciation of your car
I published my first book in 2016. My expense exceeded my revenue by a considerable margin, which means I had a business loss. I was able to apply my business loss against other income to reduce my taxes. My tax refund was significant.
If you don’t have any other income to apply the business loss against, your loss can be applied to past years and future years.
The rules outside of Canada will differ so you need to check with someone knowledgeable in tax rules. It’s important to keep all receipts, including utilities, property tax bills, etc. I use spreadsheets to keep track of everything.
You don’t make a lot of money selling books so use the tax rules to improve your financial position. And good luck!