Tax issues can surprise, confound, and frustrate even the savviest of writers, no matter if you’re writing full time or in addition to another job. The time to prepare for taxes is long before they’re due. Here are some lessons to help even the seasoned writer make taxes less taxing.
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Pay estimated taxes
When author, journalist, and editor Beth Harpaz sold her first book, she received an advance. That money brought something many new authors don’t think about – a new tax liability.
Fortunately, Harpaz was ready. “I knew I would owe more taxes, and I needed to figure out what I should pay or risk being penalized,” she says. “I wanted to deal with it right away when I had money in the bank and hadn’t spent it yet.”
In addition to the advance, Harpaz had unreimbursed business expenses from her full-time job and freelance assignments. She worked with a tax professional to maximize her deductions and pay estimated quarterly taxes.
“The United States has a pay-as-you-go tax system,” says Internal Revenue Service (IRS) spokesperson Raphael Tulino. “Paying estimated taxes is important, as taxpayers are legally required to pay most of their tax liability – generally 90 percent – throughout the year.”
Citing the dramatic tax law changes from 2017 to 2018, Tulino recommends performing a paycheck checkup using the IRS Withholding Calculator to ensure people are withholding the right amount and avoiding penalties that could be as high as hundreds of dollars. The latest IRS figures show that in 2015, 10 million people underpaid their taxes and paid penalties.
Full-time writers must pay their own self-employment taxes, such as Social Security and Medicare at the federal level. There are self-employment taxes for states and some municipalities, too. Writers who also work at a different full-time job can withhold extra taxes through their employer to balance out any freelance income or pay estimated quarterly taxes.