Tuesday, March 12, 2013

Two-Cent Tuesday: Dollars & Sense

Just as a disclaimer I am not a CPA and do not work for H&R Block or any of those, so take this with a grain of salt, especially if you get audited.  I mean, saying "some guy on a blog told me!" probably won't stand up as a legal defense.

Anyway, last month I finally got around to doing my income tax returns.  I could have done them sooner but I had to wait for Amazon to mail three different 1099-MISC forms for my book sales.  One is for Amazon in the US, one for International, and one is for CreateSpace (owned by Amazon) for paperbacks.  I actually like Smashwords because they do it online so it's much quicker.  Really Amazon you're a huge conglomerate why can't you do that?

I've seen some well-meaning advice bandied about that you should set up an LLC (limited liability corporation--like a self-proprietorship only with a corporation's liability protections) for your writing.  But in doing my taxes, I saw a good reason why not:  small business taxes can hit you pretty hard.

At first when I was putting in my 1099s I put them under Schedule C for small business income.  My refund then went down about $300 in short order.  This didn't seem right to me so I went to the help guide that came with my H&R Block Tax Cut software.  What it said is that if writing is not your primary source of income then don't use Schedule C for small businesses.  Instead you want to use Schedule E for miscellaneous income.

Now since I only made $550 from writing, it obviously was not my primary source of income.  So I changed it to put my 1099s on Schedule E and my return went down by only about $100 instead.  So that's a $200 savings!

Which is why unless your writing is going to be your primary source of income and you're making tens of thousands of dollars, you don't want to create a LLC.  Unless you want to give the government a few hundred bucks when you don't have to.  Maybe you're just generous that way.

Tomorrow's trivia question posts really early (for those of you west of the Mississippi it'll be posting today!) and will only be difficult if you've not read my book or paid attention to this blog in about a year...yeah, you guys are fucked...


  1. I did my taxes this week. My biggest stumbling block was that I don't have enough kids... that's a goldmine right there.

  2. Business income generally requires you to pay the self-employment tax. W2 employees get 7.65% of their first $100,000 or so of income taken as social security. The employer then pays an additional amount equal to that. So if you earn $50,000/ yr, you will have $3825 deducted from your wages and given to the feds. Your employer then takes another $3825 from his own pocket and pays that.

    When you're self-employed you have to pay both halves.

    LLCs have other problems. If you use LLC income for personal purposes you might be committing tax fraud. The business may or may not have to file its own tax return. If you do not follow corporate formalities you might be invalidating the LLC.

    A basic rule of thumb: consult a lawyer and CPA before doing any transaction involving $10,000 or more. If my grandfather had followed that advice his children wouldn't have faced huge tax problems when he died and the entire family wouldnt have had a ten-years-long argument over a stupid house in West Allis, WI.

    Of course, they'd have probably fought about something else.

  3. Okay, see, you made more than $500 off of your writing last year, so I'm not sure why you want to give it up. I mean, unless you don't enjoy it. But, if you do enjoy it, why give it up?

  4. Wow! You made $550 on your writing last year! I only made half that. Not kidding. Way to go on the sales, P.T. (not being sarcastic). I was depressed at first that I only made like $250 bucks but then I decided not to give a shit. Plus it gives me more freedom to be obnoxious on comments on people's religious blogs because it's not like they're buying my book anyway.

  5. Let's just say...I wish I would've read this before I did my taxes. I used Turbo Tax and this option didn't come up.

  6. I didn't make anything off my writing yet. But I got my tax refund cheque back today! Quite a chunk of change - mostly for what I was able to squirrel away in my retirement fund last year.

    Now that it's come, I've finally ordered a refurb desktop to replace the tower that blew its motherboard in December. :)

  7. I made like twenty bucks, dude. You're way ahead of the game.

  8. I'm impressed you even received your forms from Amazon. I've had them send me it THREE TIMES NOW but still have gotten any. But turns out I don't need to file for 2012 anyway, so life's good. Until next year.



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