Indie authors use cash accounting method

When running your self-publishing business as an indie author, you’ll want to choose an accounting method that sets the rules you’ll use to determine how your income and expenses are kept track of and when they are reported to the IRS.

There are two basic methods: cash or accrual. The cash method requires you to report income in the tax year that you receive it. So if you were paid $1000 in July, then it is filed on your taxes for the year in which that July fell. The accrual method requires you to report income in the tax year that you earned it. So if you earned $2000 during August for services provided but were only paid $1500, you still would report $2000 in income on your taxes for the year in which August fell.

As an author, you almost certainly will use the cash method. The accrual method is required if you have an inventory, or goods that are held for sale. Still, even if you purchase copies of your books and related items (such as T-shirts, coffee mugs, etc., that promote your books), which you sell at book readings, you almost certainly don’t hold enough inventory that the IRS would require you to use the accrual method.

If you own more than one business, you can use different methods for each one. So, if you run a ma and pa store or an online business in which you must use the accrual method, you could treat your book revenues as a separate business and use the cash method for it.

In short, accounting for most indie authors is fairly simple. Just keep track of your revenues (books sales, payments for speaking, etc.) and your expenses (printer cartridges, paper, pens, gas for travel to book readings, etc.) and you’re good to go. Regardless of your expenses, your total revenue is your gross income; whatever you earn from Jan. 1 to Dec. 31 must be reported to the IRS and your state tax collection agency the following April 15.