The following is a chapter from Business for Breakfast, Volume 1: The Beginning Professional Writer.
However, if you’re like most writers (broke!) I will also be posting a chapter a week, so you’ll merely have to have patience to read all twelve chapters.
Breaking Up Is Hard To Do
Writing is a great, great thing. And it may be all you’ve focused on until now.
However, your writing is not the same as your business.
Even before money gets involved, you must start thinking about your business, not just your writing.
This chapter is all about separating you, the artist/writer, from your business.
As a writer, you’re already used to having different voices, people, characters in your head.
Your business is just one more separate entity. Another voice you’ll need to learn about and use.
Doing Business As (DBA)
DBA stands for Doing Business As. It may or may not be called that in your state or country. For example, in Washington state, it’s called trade name. In Idaho, it’s called a business license. In California, it’s called a Fictitious Business Name.
Do you need a DBA? Unfortunately, the answer is, it depends. Not just on your intention, but your state and country.
If you are going to be publishing your work, you probably need a DBA for your publishing house. (Again, check your state or country laws.)
If you are submitting your work to publishers, you may or may not need one, depending on your state or country’s banking laws.
Why do you need a DBA?
Because this is part of the breaking apart of you and your business.
Businesses have their own separate checking accounts. Their own separate credit cards. Their own separate accounting.
In Washington state, I needed a DBA in order to open up separate checking accounts for my businesses.
In your state or country, you may also need a DBA to open up separate banking accounts for both your writing business and your publishing business.
Why do you need a separate checking account?
To make it easier to keep track of both income and expenses.
But I don’t have any income yet!
That may be true today. It may be true a year from now.
Will it still be true five years from now? Ten years from now?
You are setting up the structure now, so that when you do start making money, everything will be in place and you won’t be scrambling or in a panic.
Which means I can do this a year from now, right?
There’s another reason why you want to separate your writing from your business, and to do it sooner rather than later. Before you start earning income.
First of all, the disclaimer: I am not a tax professional, nor do I play one on TV. I cannot actually give you tax advice.
All I can do is to make you aware of some things.
Even if you don’t care about saving money on your taxes, you should still understand the following principles.
In the United States, as your business, you are generally what is called a sole proprietor. This means that on your taxes, you’ll fill out something called a Schedule C.
I know. I know. Deep breaths. It’ll be okay. I’m not about to get into the nitty–gritty of something like a Schedule C. You’ll need to talk to a tax professional about that.
All I’m here to tell you about is that, for the business of an artist/writer, a Schedule C may help you save money.
By possibly lowering your taxable income.
(Notice all the weasel words in these statements. May. Possibly. Again, not giving you advice or guaranteeing you anything. Please don’t sue me.)
In the United States, one of the things that the Internal Revenue Service (IRS) looks at is whether your writing is a business or a hobby.
Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
Are you submitting your work? If the answer is yes, you have the reasonable expectation of earning a profit.
If you’re publishing it yourself, the answer to that is yes as well.
You must keep a record of your submissions as well as what you publish. That is enough to show to the IRS that your intention is to make money.
With that record, you are a business, not a hobby.
Again, not giving you tax advice here. You need to make your own choice and decision.
There’s a lot of misinformation about “you must show a profit three years out of five.”
How long did Amazon.com go without showing a profit? Ten years? Twelve years? Are they even making a profit yet?
Yet no one would accuse them of being a hobby and not a business.
There is a difference between profit and income. I devote a whole chapter to it later.
If you’re worried that the IRS may think of your writing business as a hobby, there are plenty of ways to demonstrate your intent. For example, creating a website for your publisher. Having an Amazon Author page with all your independently published books listed. Maybe even registering as a DBA and having a separate checking accounts for your writing business.
All of these things show the intent to make money.
Which makes you a business.
Not whether you show a profit or not.
I am not a Certified Public Accountant (CPA) nor do I ever want to play one on TV. All I can do is tell you about things I’ve learned about. I’m not giving you advice.
Why you keep good records and you keep track of everything?
So you can deduct legal expenses off your taxes.
Why do you care about that?
You pay taxes on your income.
Your expenses are subtracted from your income.
Lower income can mean lower taxes.
The IRS has lists of what count as business expenses here, including but not limited to:
- Advertising expenses
- Education expenses
- Internet–related expenses
So look at this list from your writing business point of view.
You take a workshop or a class about writing. That is an Education expense.
This is a business expense, that you can then deduct from your taxable income.
You write about horses. You’ve published short stories or novels about horses. You subscribe to Horse Lover’s Monthly magazine. This is a Subscription.
This is a business expense.
You purchase your own domain name. The domain registration fees are an Internet expense.
This is a business expense.
By subtracting your expenses from your income, you may lower my taxes.
The three things you need to remember:
- Separate yourself from your business, so that you can more easily keep track of expenses and show intent to operate as a business.
- Keep good records of your intent to be a business (submitting or publishing your writing) as well as your expenses.
- Intent is key. Not income.