My Annual $10,000 Advance Post
February 25, 2009
Yes, it's back. Here's some math for the aspiring novelist.
You've received a $10,000 advance! Congratulations!
$10,000
-$1,500 (agent commission)
= $8,500.
Your favorite Uncle Sam gets his cut, which is 24% (welcome to the SE Tax, my friends).
$8,500
-$2,040 (Fed tax)
= $6460
Your state may or may not charge you tax. My state, Michigan, takes about 4%.
$6,460
-$340 (Michigan state tax)
= $6,120
Let's say you thought, now that you're an author, you want or need to go to one of the big conventions for writers. Say, Bouchercon or ThrillerFest. ThrillerFest is now held yearly in NYC. Figure in airfare, cost to get in, hotel and miscellaneous expenses, easily spend $1000 to $2000. (If you prefer the $1000 number, then go to both).
$6,120
-$2000
=$4,120
Your publisher is "encouraging" you to promote your novel. Somebody suggests AuthorBuzz, an online marketing option. Price, about $1000.
$4,120
-$1,000
= $3,120
Let's assume for the moment that you want a really spiffy, professionally produced website (or you're a web incompetent like me). So you hire a designer, get your name turned into a URL and pay for hosting. I would say this will cost approximately $1500, give or take. I pay about $224 a year to host and my original design was somewhere over $1000 when all was said and done.
$3,120
-$1500
= $1620
Your publisher would also like you to do some mailings of some sort. So you decide to get some postcards and bookmarks made up, then mail them off off to your list of book readers that you've either acquired from MWA or culled from various lists. Cost, oh, let's say $1500.
$1620
-$1500
=$120.
Hey, you got some book signings at bookstores and libraries. They're scattered around your state a little bit. So you keep track of your milage and your gas and the meals you eat while in transit. Cost: $120.
$120
-$120
= $0.
Congratulations. You are an author!
Cheers,
Mark Terry
Yes, it's back. Here's some math for the aspiring novelist.
You've received a $10,000 advance! Congratulations!
$10,000
-$1,500 (agent commission)
= $8,500.
Your favorite Uncle Sam gets his cut, which is 24% (welcome to the SE Tax, my friends).
$8,500
-$2,040 (Fed tax)
= $6460
Your state may or may not charge you tax. My state, Michigan, takes about 4%.
$6,460
-$340 (Michigan state tax)
= $6,120
Let's say you thought, now that you're an author, you want or need to go to one of the big conventions for writers. Say, Bouchercon or ThrillerFest. ThrillerFest is now held yearly in NYC. Figure in airfare, cost to get in, hotel and miscellaneous expenses, easily spend $1000 to $2000. (If you prefer the $1000 number, then go to both).
$6,120
-$2000
=$4,120
Your publisher is "encouraging" you to promote your novel. Somebody suggests AuthorBuzz, an online marketing option. Price, about $1000.
$4,120
-$1,000
= $3,120
Let's assume for the moment that you want a really spiffy, professionally produced website (or you're a web incompetent like me). So you hire a designer, get your name turned into a URL and pay for hosting. I would say this will cost approximately $1500, give or take. I pay about $224 a year to host and my original design was somewhere over $1000 when all was said and done.
$3,120
-$1500
= $1620
Your publisher would also like you to do some mailings of some sort. So you decide to get some postcards and bookmarks made up, then mail them off off to your list of book readers that you've either acquired from MWA or culled from various lists. Cost, oh, let's say $1500.
$1620
-$1500
=$120.
Hey, you got some book signings at bookstores and libraries. They're scattered around your state a little bit. So you keep track of your milage and your gas and the meals you eat while in transit. Cost: $120.
$120
-$120
= $0.
Congratulations. You are an author!
Cheers,
Mark Terry
posted by Mark Terry at 5:43 PM
15 Comments:
Ouch :-( Please, oh please tell me you can write all of those things off as tax deductions. That will take some of the sting out of it for me. Not much, but some.
Can't wait to work my ass off to get right back where I am now...$0! But it makes a nice clip!
It's the next novels where I assume you start to make some money, if you are lucky.
Also, Mark, is $10k the ave now, I use to hear $5k, are things looking up,(inflation, etc) or did you just start with a nice round number?
LC
--keeping in mind that there is some humor attached to this column, yes, everything is tax deductible, either as Promotion or as business expenses such as travel.
Ben
--I still hear $5K as "average." Of course, I have yet to have an "average" advance. And keep in mind that if $5K is average and Stephen King and John Grisham are getting multi-million dollar advances, then an awful lot of people are getting less than $5k in order for it to be average.
I just started with $10K because you can make it come to zero so nicely and it's an easy number to deal with. I've done similar columns on $100K and a million--the taxation on a million is a scary thing, but I can live with it. :)
And lest people get too dishearted by this, you don't have to do AuthorBuzz, you don't have to go to big conferences and you can drive to them and share a hotel room or stay at a cheaper hotel than the ones they're being hosted at, to my mind having done postcards they're pretty much a waste of time, it's possible to do your own website.
Still...
In my experience, my actual tax rate on freelance income is between 12 and 15 percent ... I'll take the $6,460 and then come up with every tax deduction under the sun to drive it up. It's my favorite game this time of year: "How little can Jon make?"
Jon,
Interesting math you do there. Is that based on actual income after business expenses? But still, when I file quarterly, I file at 24% and when we hit the end of the year, we've pretty much nailed it. This year we're getting back about $1600 from the federal gov't and for the first time ever, about $700 from the state of Michigan. Now, I know you're in Florida and Florida's tax structure is dramatically different from Michigan, but I don't see how you can get that low a tax rate unless you're doing your calculations based on how much you paid post-deductions.
Mark, here's another way to look at it. It takes a year to write a book. With two weeks off for vacation and based upon a 40-hour work week, you've just made .20 cents an hour. :-)
Mark,
We have no income tax in Florida, so there's that. And I always owe ... I underpay quarterlies usually because there's no way I'm overpaying the government for the privilege of holding onto my money.
As for the final rate, yes, it's after deductions. And I'm a madman with deductions. I pretty much deduct everything under the sun -- but my accountant is a stickler for all of it, so the record-keeping sucks. So here's how I get the figure:
Actual income - business expenses = adjusted income.
Then, once you figure in child tax credits, it usually comes out to a tax burden of between 12 and 15 percent of my total income. Payroll taxes are the ones that get me.
I can only assume you're not actually paying 24% of your income in taxes either (considering you're getting money back) once you figure in deductions and various tax credits.
Oh yeah ... I see what you mean. I'm probably in the same tax bracket you're in, so technically my federal income tax rate is the same as yours. But I don't view it that way because, on my accountant's advice, we usually don't pay or underpay quarterlies (a long story, if you want it). So instead of looking at the federal tax rate, we make assumptions based on actual dollars out of pocket when we write the check every year.
Joe,
Happy thought, there.
Jon,
E-mail me your rationale there. I doubt I'll follow it--if it ain't broke, don't fix it--but we had to fuss around with the gov't this year because they didn't like that one quarter I made about $8000 and another quarter I made about $30,000. (Hell, I liked the $30,000 quarter and wish I'd had three more of them). Knowledge is power.
And yeah, no income tax in Florida. Don't you make the money back through some exorbitant sales tax on tourists? In MI sales tax is 6% (it used to be 4%).
I'm always tinkering with the state tax because for years I've always owed something. This is the first year I got anything back and I can't figure out why, but I guess I'll use the money for something.
Jon,
Oh, and my understanding was if you don't pay quarterly taxes on income over, I don't know, it's like $6000, you had to pay a penalty. (No specifics, just something my accountant said last year. I'm no accountant and it's one field of endeavor I can't imagine doing).
LOL, Mark! I'd stop spending my money after paying the taxes. Okay, I'd pay $80 a year to host my website, but I'd build it myself.
On the other hand, you have to pay money to make money, so maybe that tactic would be better in the long-term. I hear a lot of authors use that reasoning as they spend their advance.
However, I've only heard two or three authors say, after the fact, that they are happy they invested their entire advance in their career... and they all had pretty big advances to invest, so it made a difference.
I'm not as convinced the same methodology works with a 10K advance. Does it?
Spy,
Probably not. I've heard people say, "well, every little bit helps," but I'm unconvinced. Part of the problem is focusing on one or two things because that's what your money allows, but a little bit of a lot of different things is probably better than nothing at all (maybe).
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