Mark Terry

Thursday, February 07, 2008

Freelance Writing For A Living, Part 8


February 7, 2008

Writing for a living is a business. You need to treat it like one. Almost everything here is common sense, but you'd be surprised how many would-be writers don't pay attention to it.

Keep track of your income. I use Excel spreadsheets. I also have a nice big envelope that I keep all  my expense receipts in. In fact, I've got several Excel spreadsheets.

1. One is basic expenses and income. Essentially five columns. Column #1 is the date. Column #2 is Expenses, where I will list what I actually bought. Column #3 is how much I spent on whatever I bought. Column #4 is Client, where I write who it was who sent me a check. Column #5 is where I write down how much that client paid me.

2. This is a running total that's used for taxes. Yes, boys and girls, you're now self-employed and you get to pay taxes quarterly. Before I started paying taxes quarterly I was fairly mellow about the amount of taxes I pay to the government. After all, I get services from that money--roads and bridges and the military and stuff like that. But when you have to actually cough up a large check every 3 months for a third of your income, and everything else you buy is taxed, you quickly start to realize how much money you give to the government.

Anyway, this spreadsheet came about because one year, just as we were going to Disney World, we realized we had forgotten about our quarterly taxes, and we almost had to empty our bank account before going on an expensive vacation. Never again. This spreadsheet is called Running Totals, and it has four columns. The first column is the date. The second column is Income. The third column is Federal Tax (24%). The fourth column is State Tax (4.0%). If you're really handy with Excel (I'm not), you can create equations that are automatic. I just calculate it.

So, say, on February 2 I get a check for $1000. The date goes in the first column, the $1000 goes in the second column. Under the third column, I calculate 24% of $1000, which is $240. Under the 4th column, I calculate 4% of $1000, which is $40. (For the math impaired, that's 1000 X .04). So there you have it. I'm paying 28 cents on every dollar I make in taxes.

I would point out that each state is different. I've had to adjust the state withholding every year I've freelanced and always end up owing at the end of the year. I think it's gone up again, so it should probably be 4-1/2% this year, but I'll wait to talk to my accountant before I make the adjustment. For some of you, you might not need to pay state income tax. Some states don't. I don't think Florida or Texas do. (AND THEY'VE GOT WARM WEATHER! Damn, let me call a real estate agent.)

This particular spreadsheet gets printed out every week with totals (sums are very easy to do on Excel) and given to my wife, who manages the money. If I were in charge of all family monies (which, Thank God, I'm not), I would open a separate checking account just for tax money and every time I got a check, stick 28% or so in there (or even a little more and call it a savings account).

3. I have a third spreadsheet that's more complicated, but significantly less mathematical. It's how I keep track of what's coming and going and who's paid me and when. It's got 11 columns. They are:
Date Published
Project Type
Client
Title
Fee
Deadline
Date Sent
Date Paid
Amount Paid
Date Assignment Accepted
Invoice #

Now, I note upon looking at this spreadsheet, that Date Assignment Accepted is almost always blank. That tends to be used for bigger projects with multiple acceptance dates and I write notes in there. Everything else is pretty self-explanatory, I hope.

As for invoices, if you're using Microsoft Word, just go to the little window box in the upper right corner in Search and type in "invoice" and it should connect you to their website where there are dozens of different templates for varying documents, including invoices.

My invoicing number system is simple: #08-0001. That indicates the year and the 1 indicates it's the first invoice of 2008. The second would be #08-0002. And yes, having 4 figures of invoices is wildly optimistic, but I thought it looked better than 3. 

I save the invoice because it's typically e-mailed as an attachment to the client almost at the same time I turn in the article or project. (Typically shortly afterwards. I don't wait to invoice. I don't wait to do bookkeeping things. I do them as they come in). I also print out a copy of the invoice, use a 3-hole punch and stick it in a 3-ring binder. It's probably unnecessary, but from time to time you need to go back and look at these things and I'm a bit of a Yankee with the old belt-and-suspenders mentality when it comes to keeping track of things. Also, who isn't occasionally absent-minded and forgets to do SOMETHING, like fill out one of all these spreadsheets laying around.

[and a side note. Back up these records. Burn them regularly to disk or put them on floppies or flash drives or a backup hard drive. A year or so ago I got paranoid and invested in a backup hard drive. I regularly saved everything onto it. Then, since I bought an iMac that has the new Leopard operating system, there's a very, very cool program called Time Machine. Once you set up Time Machine, it saves EVERYTHING on the computer to the backup drive on an hourly basis. And when you click on time machine, you can go backward in time every hour to find what you want. Talk about peace of mind].

4. Keeping tabs on expenses. I mentioned this under #1. Just a couple points. You'd be surprised what you can legally and ethically deduct as a freelance writer. A novelist? Guess what? Books you buy are deductible. Your computer is deductible. Your backup hard drive. Paper. Pens. Notepads. Postage. 3-ring binders. Your office space as a proportion of your house payment. Internet access. Phone. Part of your utilities. 

If you travel for an assignment or if you're a novelist doing book promotion, keep track of mileage. It's deductible.

I'm not an accountant. But I hire one from H&R Block at the end of the year. Taxes got too complicated for me. She's worth every penny. Also, with H&R Block, you can spend a little extra when you do your taxes so that if the IRS decides to audit you, an H&R Block representative will come and hold your hand.

Just a word on deductions and expenses. I'm pretty conservative about this. I take the attitude that if I can't document it, I don't try to deduct it. Sorry guys or gals, if you're on a business trip and you go to a strip joint (it's research for your next novel, I know, I know) and start tucking $20 bills in G-strings, unless you're getting receipts, I wouldn't try to deduct it.

The bottom line for all this is that you're now a business person. Act accordingly. Keep track of the money. Keep track of the expenses. Work out some system that is easy and works for you. If you're not comfortable with Microsoft Excel, there are pretty inexpensive invoicing and accounting programs that can keep track of everything and even cut checks.

Oh, one more point. I mentioned a specific checking account for taxes, if that's your inclination. We haven't gone that route, but I do have a separate credit card and a checking account specifically for my business. Mostly I write checks to the credit card company on it, but I think, as much as possible, it's good to keep your business monies separate from your household monies. That can solve a lot of headaches, particularly where the IRS is concerned.

Cheers,
Mark Terry

14 Comments:

OpenID eric-mayer said...

All I have to say about this, insightful as it is, that Mary keeps the books and does the taxes and she's welcome to do so! Oh, and, yeah, the entrepreneur penalty really sucks. An extra 7.5 percent is a big tax to pay for the privilege of working for to work for yourself. I thought folks like us were supposed to be encouraged in American society?

9:49 AM  
Blogger Mark Terry said...

I've often thought the same thing. Also, one of the arguments for universal healthcare that I've never heard, but believe would be true, is that it would encourage people to be entrepreneurs, because an awful lot of people just can't afford healthcare insurance, and if you throw that on top of a lot of businesses' bottom lines, it becomes impossible.

10:06 AM  
Blogger Chris Monaghan said...

Hi Mark,

I'd like to invite you to try out Time59 (www.time59.com). It's a program that will let you keep track of your time and expenses, produce invoices, and receive payments. It's web-based so there is nothing to install and it costs only $19.95 per year after a 30 day free trial.

Chris

11:25 AM  
Blogger Mark Terry said...

Chris
Why invest $19.95 when I'm successfully using software ALREADY ON MY COMPUTER????

12:48 PM  
Anonymous Anonymous said...

I'm pretty sure it's not necessary to file quarterly taxes. You can do them at the end of the year.

9:52 AM  
Blogger Mark Terry said...

Anonymous,
So, at the end of the year you want to write a check to the government for, say, $15 to $20,000?

Good luck with that. I think I'd have a stroke.

5:59 PM  
Anonymous Anonymous said...

If you budget, then think of how much time you'd save by NOT filing quarterly. I freelance, but don't file quarterly. Just set aside a chunk of each freelance check that comes in. It's truly that simple.

8:31 AM  
Anonymous Anonymous said...

AND earn interest on the money you have set aside to pay at the end of the year. Besides, the bigger the chunk you pay at the end only displays how sucessful you've been! Feel good about that fat check to the IRS...

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