As a published author, you’ll have to pay taxes on your earnings from book sales. As most self-published authors are self-proprietors, that means you’ll need to fill out some additional forms with the IRS.
A minimum of three forms have to be filed with the IRS:
• 1040 – This is the income tax form that you typically complete. You’ll have to fill out some new lines on the form, however, namely those regarding business income.
• Schedule C – This is the profit and loss form for sole proprietors. Numbers from this form are needed to completed your 1040.
• Schedule SE – This form is used to determine your self-employment tax, which is your contribution for Social Security and Medicare. Numbers from this form also will be used to complete your 1040.
There may be additional federal forms that you must complete, specifically for taking deductions, such as for a home office, or for health insurance coverage you might take out through your business.
For many first-time authors, federal taxes – thanks to the self-employment tax – comes as a surprise. Given this, always set aside a portion of your earnings from your sales rather than spend all of it. You can estimate how much you will have to pay in taxes by going to irs.gov and your state revenue department website to review tax rates against what you’ll likely earn. Short of that, a good idea is to set aside 30%-40% of your income for federal and state taxes; that amount is probably high for most authors, but arguably a windfall is better than a shortfall come April 15.
In addition, if you’ll have to pay more than $1,000 a year in taxes to the federal government, you’ll need to pay that in four portions, due two weeks after the end of each quarter (Federal quarters end on April 15, June 15, October 15, and January 15.). The payments should be in equal amounts, so if you owe the feds $1000 in taxes, each quarter you would owe $250. You may have to do the same for your state if it collects income tax.
IRS Publication 583 (available online for free via irs.gov) offers suggestions on starting a business and keeping records for it.
Many authors work from their kitchen table or den so slightly reduce their taxes by taking tax deductions for having a “home office.” If you wish to take that route, then check with the IRS on what it will allow for tax deductions; IRS Publication 587 (also available online for free via irs.gov) covers that topic.
When filing taxes, be honest! IRS audit rates are higher for sole proprietors than for corporations, probably because the opportunity to hide income is easier for self-employed individuals.
Final note: You also may need to pay state and county sales tax on books you sell at an event. Laws differ from state to state, so check with your state’s department of revenue for the correct forms to use.
My name is Rob Bignell. I’m an affordable, professional editor who runs Inventing Reality Editing Service, which meets the manuscript needs of writers both new and published. I also offer a variety of self-publishing services. During the past decade, I’ve helped more than 300 novelists and nonfiction authors obtain their publishing dreams at reasonable prices. I’m also the author of the 7 Minutes a Day… writing guidebooks, four nonfiction hiking guidebook series, and the literary novel Windmill. Several of my short stories in the literary and science fiction genres also have been published.