The Wednesday Writer’s Corner: Finances for the Self-Employed
Okay to start, I
don’t personally know many writers who are like me and JC in the sense that writing
novels constitutes 100% of their income—and in all honesty, I’m not sure I would
recommend it. Most of the professional
writers I know have a spouse/partner with a full time job, or the writer has a
job and manages to finish a book a year around the cracks of time.
But JC and I are
both full time writers.
Depending on
both the publishing industry and sales to the general public, this can be a
tenuous way to live. Self-employed
people are also in charge of their own health insurance and their own
retirement, so think about this carefully as you’re making career plans. But
for today, I’m just going to talk about how the money breaks down for a full
time writer (who is working with a publisher).
Agent Fees: The whole “agent question” is much
discussed among writers these days, and some writers are screaming to the
rooftops that in the new world of publishing, we must all fire our agents
because we don’t need them anymore.
This is a complex topic that I may cover soon in the future. I actually do hear what these
folks are saying on a number of levels.
But at present—meaning this moment in time—all of the successful writers
that I personally know use a literary agent because all the successful writers
I know have New York publishers, and you simply need an agent to handle
submissions, negotiations, and reading the legal fine print in the contract. I would not deal with a major New York
publisher without an agent.
Period. But . . . the agent
does take 15% of everything you earn.
So, if your advance against royalties is $6,000 for a book, the money
will go from the publisher directly to your agent, and then the agent will send
you a check for $5,100. Just keep
that in mind.
State and
Federal Taxes: Let’s say you’re
now an established writer, and you’ve had a good year, and you’ve signed a new
contract with a signing advance, and at the same time, your book sales were up. So you pack up all the tax information
you’ve been carefully keeping (remember, you are self-employed) to your
accountant.
For the sake of
argument, let’s say that after deductions, your taxable income is $70,000. Wow. You are way ahead most writers.
But since you’re
also paying a self-employment tax, federal taxes will take roughly 28% and if
you live in a state like Oregon (as we do) with a state income tax that runs
between 11% and 9%, that leaves $45,000—although your actual “take home” will
be slightly higher because your accountant took some deductions from your gross
income to calculate your taxable income.
For a writer,
you’re earning decent money, but between your agent and taxes, a lot of that
money is spoken for. Also, keep in
mind that mediocre private health insurance runs about $600 a month for a plan
covering two people.
Quarterly Tax
Payments: Okay, self-employed
people are responsible for pre-paying federal and state income taxes—just as
your employer takes money out of your normal paycheck, and at the end of the
year, sometimes you get some back and sometimes you owe. So, after doing your taxes for 2011,
your accountant is also going to send you home with four nifty little slips of
paper with your quarterly estimated taxes for 2012—and these figures are based
on your income from 2011. So, in
April, June, September, and January, you are responsible for writing a check
(and sending it along with one of those nifty little 1040-ES slips) to both the
federal and state governments and getting those taxes paid. I’ve seen a few unfortunate tragedies
happen with “overnight success stories” where a writer or artist made a bundle
for the first time and had no idea that he/she was required to pay quarterly
taxes on that money—and then got hit with a huge and unexpected tax bill later
(along with penalties for late payment).
This seems to happen more with musicians than any other form of artist
for some reason, but just be sure you pay your quarterly taxes if you start
earning real money.
The Waiting and
the Darkness: If a few of the
issues above seem slightly daunting, this one is worse. The time it takes for a writer to get
paid is not only grueling, it involves a lot of calculation and guesswork.
JC and I are
lucky, and our publisher pays out royalties twice a year like clockwork. We know that we will receive a royalty check
every September and March . . . but we have absolutely no idea how much those
checks might be, and the figure is always a surprise—sometimes good and
sometimes not so good. There are
so many factors involved in a royalty check (such as holds against returns)
that even a highly qualified agent cannot begin to guess at the amount of the
check. You are in the dark.
For “advance
against royalties” checks, you will know the exact amount of the check, but
often, you are in the dark regarding when those checks might arrive. For example, once you sign a contract
and send it back to the publisher, you will receive the “on signing” part of your
advance. For us this has taken as
little time as three weeks and as long as three months, but the writer just
doesn’t know. So don’t start
spending that money until it arrives.
Last week, I
mentioned that once you turn in your revised manuscript and your editor
officially accepts it, she then puts in a request to the royalties department
to have your “delivery and acceptance” check cut. If she is timely about doing this, and all goes well along
the way, the check will probably be sent five to six weeks after she requests it (I’m not
kidding). However, a number of
little things can delay this check, and it’s kind of considered bad form to
check in with the publisher until about two months have passed—as eight weeks
is not unusual. But at two months,
your agent can check in, and it’s possible that he/she will find out that a
snafu occurred a long the way, which has now been straightened out . . . but it’s
most likely another five or six weeks until the check is cut. Again, you don’t know. All you know is that the snafu has been
corrected and at some time over the next five weeks or so, the check will probably be sent.
Okay, now . . .
all money from the publisher goes directly to your agent. Then your agent deposits the check into
his/her bank account and cuts you a check for 85% of the money, but this
process can take two to three weeks, depending on how your agent does things (our agency is much faster).
Are you getting
the gist here? If you’re going to be
a full time writer, you need to be an extremely careful financial planner and
count on months (literally) where you might have to cover your expenses while
either waiting on a check or live quite tightly while waiting to find out the
amount of a check. It’s a tenuous
business and not for poor planners or the faint of heart (smiles).
