News, commentary, and fiction by Barb Hendee, co-author of the Noble Dead saga (; author of the Mist-Torn Witches series, the Vampire Memories series, and more.

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).