A Writer And His Money...

January 15, 2009

Because I was thinking about my taxes and because I was thinking about my 2009 income t0-date (yes, I know, it's only 15 days so far, and already I'm obsessing, shut up, I'm a writer for God sakes!), I thought it was time for a brief blog about a writer and his/her money.

1. Once you start making money as a writer, you need to pay taxes on it. This sucks. I'm sorry, but it does. I don't mind paying taxes from a theoretical point of view. After all, those tax dollars pay for services like roads and the military and the cleaning of the Washington Monument. Unfortunately, it also pays for things like the war in Iraq and Dick Cheney's health insurance, both of which I would prefer not to pay for.

The reason paying taxes sucks for a writer besides the fact you're sometimes buying things you don't want to buy is because you pay taxes quarterly, ie., every three months. My federal tax rate is 24% and my state, which seems to change every year, is currently 4%. So for every dollar I earn, I need to put aside 28 cents to give to the government every three months. When taxes are taken out of a regular paycheck, it tends to be somewhat invisible. When in the first week of the new year you have to write two checks totaling about $8000+ (yes, I had a very good fourth quarter, unlike the third quarter, which sucked dead bears), you suddenly realize that, My God!, the government sure takes a lot of my money!

2. What #1 would suggest then, is that you need to learn to manage your money. In other words, you can't SPEND all of it because you need to give slightly more than a quarter of it to the government on a regular basis. There are two solutions here, I think. One, open up a separate bank account and promptly put 28% of every check in there, which will go toward taxes. Two, marry someone smart like I did who handles that and handles it well. I have an Excel spreadsheet called Accounting Running Totals. It has 4 columns. The first is the date. The second is the amount of the check I received. The third is a calculation of 24% of the amount of the check I received for Federal taxes. The fourth is a calculation of 4% of the amount of the check I received for State taxes. Every week or so or when I get a check, I total them, print them out and give them to Leanne so she knows at any given day how much money we need to keep in the savings account for taxes.

3. What perhaps needs to be emphasized here is not only do you need to make sure you have money around for taxes, you need to make sure you have money around .... period. Yes, if you do all your math, you will see that I made a very large sum of money between September and December. That was almost 50% of my yearly income, as a matter of fact. Although the first and second quarter were okay, in the three-month period of the third quarter, I probably made, oh, I don't know off the top of my head, something less than $10,000 total. In other words, probably less than $1000 a week on average, and if I remember correctly, $10 grand is pretty wildly optimistic. I knew big money was coming, I just didn't know when, so we were fairly careful with the money.

Lesson: if ya wanna make a living as a writer, freelance or novelist, ya gotta learn to manage the money, because it don't always come when you need it.

4. Keep tabs on expenses. I use Excel spreadsheets and save all my receipts. I need it for tax season. Also, your expenses get taken out of overall revenue to determine your actual tax rate. If you drive to the airport for a business trip, you can deduct the mileage. If you're a novelist and you drive to the airport to go to a conference, or you drive to a bookstore or library to give a talk related to writing you can can deduct the mileage. You can deduct books you buy if you're a novelist!!!!! (Yeah, a perk, who'd a thunk it?) Do it! This boils down to: treat it like a business.

5. Pay attention. Ties into #4, but I'm going to elaborate, because I'm facing this for the first time this year. Last year I got some money from foreign sales. That means this tax season I have to file some extra forms having to do with foreign income. Last year, I spent some time on the payroll of a company in New  York and they took taxes out for the state of NY. This means that not only do I have to deal with Michigan tax forms, but I have to deal with New York tax forms at tax season. Yippee. But if you're a writer, these things happen so you either figure them out yourself or alert your accountant (I have people) to the specifics of what's going on.

May you make lots of $$$$$ from your writing in 2009.

Cheers,

Mark Terry