Holly
Lisle's Vision
Financial
Boot Camp
By
S.L. Viehl
©
2002, By S.L. Viehl
Pursuing
a professional career as a writer is a lot like being a contestant on
“Survivor” -- you have to constantly prove your talent in an
unfriendly environment surrounded by hostile competitors.
Producing quality work in the face of repeated rejection from
ever-narrowing markets is enough stress for anyone; once you finally start
getting paid for all your hard labor, why worry about finances?
Imagine
walking into work one day and saying to your boss, “I quit.”
You can’t do that unless you can survive on your writing income.
Managing
your finances as a professional anything is part of life, but pro writing
requires an additional amount of initiative and self-discipline.
Once you’ve joined the ranks, you’ve got to undergo some basic
financial training. Think of
learning to handle your writing income like going through boot camp -- it
won’t be easy or pleasant at first, but once you know the drills, it becomes
almost automatic.
Fall
In and Listen Up!
First,
you must decide if you can afford to join the ranks.
In
order to make a living as a professional writer, your income must exceed your
annual cost of living by at least ten percent.
Your cost of living is what you spend to have food, clothing, shelter,
transportation, pay taxes, insurance, and anything else to support yourself
and/or your dependents for one calendar year.
Your income is the money you earn from writing during the same period of
time (if you have no other income outside of your own earnings, this is a
nonnegotiable figure.) Basically,
what that mean is: if your cost of living equals $45,000.00 a year, you must
make at least $49,500.00 from your writing income for that same year.
Before you quit your day job, make sure you have your figures straight.
How
do you calculate your income as a writer? The
only way you can calculate guaranteed income is by obtaining contracts from
reputable publishers for advances and royalties, and calculating your payment
schedule under contract. If it is
not in writing, it is not guaranteed income, and you can’t have a viable
financial plan based on “I hope I sell something this year.”
However,
if you have consistently sold your work over a period of time, and have regular
annual income from it, you may be able to estimate your writing income by
averaging -- i.e. add up your income for the last five years and divide by five,
and the total will be your average annual income.
When you do this, just remember this is an estimate, not guaranteed
income. It’s a little like
gambling on yourself, and you should always have a back-up income resource in
the event you have a bad year as a writer.
Drop
and Give Me Twenty!
Once
you’ve established annual income as a professional writer, you move up in the
ranks to join the self-employed. This
means you become your own boss. If
you’ve never been self-employed before, you’ll be taking on some new
responsibilities, like paying your own income taxes, maintaining complete
records of your expenses, and possibly handling the hiring of employees -- like
a research assistant or secretary.
Here
in the United States, taxes are like push-ups, and the IRS is your drill
instructor. Be prepared to hit the
dirt and endure a little pain.
Income
from self-employment is subject to two levels of taxation: 15.3% self-employment
tax, and federal income tax. Self-employment
tax consists of 2.9% Medicare tax and 12.4% Social Security tax.
Social Security tax is applied only on the first $80,400.00 of income in
2001. Medicare tax is calculated on
all self-employment income. (This
does not include individual state tax, and does not address your personal
exemptions, deductions, etc. Also,
these percentages are subject to change according to revisions of the tax laws.)
Federal
income tax is based on the amount of your income minus your tax deductions, and
can be obtained from the Internal Revenue Service through various forms
(including your annual tax income form) or by visiting their web site at:
http://www.irs.gov.
As
a self-employed writer, your income is not subject to withholding tax --
publishers don’t deduct your tax from your advance and royalty checks.
Neither does your agent, if you obtain one.
You yourself will be responsible for paying estimated taxes on your
income on a quarterly basis, and if you don’t, you will be subject to any
underpayment penalty from the IRS. Tax
payment forms can be obtained in a variety of places, including your local
community library or government center.
One
reminder: all of the specific tax information contained in this article
addresses only United States tax law. Residents
or persons working outside the U.S. should research tax information specific and
applicable to your respective country.
Run
That Obstacle Course!
Now
that we’ve gotten the unpleasant part of taxes out of the way, let’s talk
about deductions. If taxes are
pushups, then deductions are weekend liberty -- but only if you earn them.
Like
withholding tax, no one is going to take care of your deductions for you.
You must maintain complete and detailed records on your expenses.
I recommend keeping a ledger or spreadsheet to track your writing-related
expenses by week -- it not only keeps you organized, but you’ll have a better
idea of what additional taxes you may be facing prior to April 15th, and can
plan accordingly.
One
terrific organizational method I’ve seen is making a binder of twelve ledger
sheets, labeled by month, with large open envelopes stapled to the back of each
sheet. When you get a receipt, you
put it in the envelope for that particular month and make an entry on the
ledger.
The
real obstacle in claiming deductions is figuring exactly what you can or cannot
deduct. Basically, any expense
directly related to or incurred by your writing career is usually
tax-deductible. This can be
materials like printer paper and toner cartridges, but it can also be books you
buy to research a genre, or annual membership dues to organizations like SFWA or
RWA. Other areas for finding tax
deductions include continuing education, promotional expenses, supplies, auto
travel, travel out of town, telephone costs, equipment purchases, online fees,
up to 60% of your health insurance cost, etc.
However, certain expenses, like home office expense, are subject to
special record keeping requirements and/or limitations of deductibility, and
should be properly researched through the IRS or discussed with your tax
preparation professional or accounting consultant.
There
are literally thousands of tax deduction resources on the Internet, but one of
the best sites I’ve found is Kathleen McFadden’s Writer’s Tax Toolkit, at http://writetools.com/taxes.html.
Kathleen provides solid information and resource links on tax breaks for
professional writers, and her main page is worth checking out for the research
and other non-financial links as well.
Squad
Ten-Hut!
Quality
health care and affordable health insurance is another concern for the
self-employed writer -- once you quit the day job, you may be looking at
obtaining and paying for your own plan. Group
insurance is always the most cost-effective option when purchasing a plan, but I
recommend every new pro invest some time and shop around to find the most
competitive rates.
One
site I found that provided individual and small business group health insurance
information on all fifty states is the Artist’s Health Insurance Resource
Center, at http://www.actorsfund.org/ahirc.
Also, check with the writing organizations you join, and see if they have
group insurance rates available to the members.
Some groups, like the National Writer’s Union (http://www.nwu.org)
offer terrific benefit packages; however, their annual membership fees from
$110.00 to $270.00. Before you join
any group in order to obtain health insurance, add in those membership fees and
make sure it’s cost effective for you.
Fall
Out!
Now
that you have the training to do some serious financial planning, one last bit
of advice: don’t put it off. It
is the easiest thing in the world to procrastinate about money matters,
especially when you’ve got to worry about meeting deadlines and promoting your
work. But handling your income
responsibly is an important part of your job, and it often has the greatest
impact on the quality of your work and your life.
Set
aside a fixed time each week to work on your finances.
Make it a time when things are quiet and you can do your bookkeeping and
keep your financial records up to date without distraction.
Incorporate managing your finances as part of your weekly routine, and in
time it will seem just as natural as formatting a manuscript or changing a
printer cartridge.
If
you’re still not convinced, think of it this way -- the money you save through
financial planning can be reinvested in you as a writer.
If you save twenty dollars a month by saving on taxes or health
insurance, in a year you’ll have enough money to buy a better computer, or go
on a research trip, or attend a conference out of state (expenses which are all
tax-deductible, too, btw.)
As
you continue in your professional career, you’ll face plenty of new
challenges. By managing your
writing income responsibly, you’ll give yourself the security of knowing
exactly where you stand, and the ability to make better decisions when it comes
time to consider new offers and negotiate viable contracts.
Best
of all, you may never have to look at yourself in the mirror and say, “I
quit.”
Copyright
2002 by S.L. Viehl
S.L.
Viehl is the author of Roc's StarDoc series and writes for Onyx as Gena
Hale.
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