If you're a recently published author (or entrepreneur), you may have no idea how to file those royalty statements you've been receiving. Or you may have generated sales with income receipts to support. If you're not a tax professional and have no clue about income taxes, here's a few tips on filing your federal income tax as a self-employed individual.
Are you required to file:
If your only income is from your published book, you are NOT required to file if your total income is less than $400. Any amount over this, you are required to file.
If your only income is from your published book, you ARE required to file if your total income is more than $400.
If you have other combined income from other sources, you are required to file regardless of self-employment amount. Refer to the IRS filing requirements.
Income received from your published book as well as any amount reported on a 1099-Misc, should be reported on Schedule C (the final amount will appear on form 1040 line 12).
In addition to income, you'll want to report your expenses associated with creating and marketing your book. Claiming your expenses against your income is how you'll reduce your taxable income on your 1040. Example:
Total Income for the tax year: $5000
Total Expenses for the tax year: $2000
Taxable amount (1040, line 21): $3000
Expenses can include, book cover design service fee, editing service, cost associated with advertising, and even fees paid to be an exhibitor at an event. If you use your car for transportation associated with the sale of you book, the mileage used can be considered a travel expense. Other travel expenses can include tickets for bus, train, air as well as fees to stay in a hotel.
Be sure to hold on to any receipts for expenses you plan on claiming for the tax year. If you have inventory, you'll need to know the beginning and ending amount for the year.
If you're an author with only income from your published book with no expenses, the entire amount is taxable.
Self-employment income is subject to self-employment tax (SE tax). This is comparable to Social Security and Medicare taxes withheld on your W2. Based on the business income for the year, you may be subject to SE tax.
Quarterly Self-Employment Tax:
You have the option of paying your estimated Self-Employment tax quarterly or pay the amount on your 1040 return.
If you choose to file estimated taxes you must file form 1040-ES, Estimated Tax for Individuals. You'll need your prior year's annual tax return to complete the form. If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year. There is a worksheet attached to from 1040-ES to determine if you are required to file quarterly tax. You can complete the worksheet each quarter to refigure your estimated tax if your estimate was either too high or too low.
We hope we were able to help aid in filing your self-employment income tax return. As always, consult with your tax professional regarding any questions you may have when filing your income tax.
Insiders How To: Claim Writing Space as Home Office on Income Tax Return