Last Minute Tax Tips for Ghostwriters
There’s something funny about being a ghostwriter: While you might be great at writing and capturing your client’s voice, ghosting also has a business side. Earning an income as a ghostwriter means dealing with tax issues each year (and each quarter when you have estimated payments!).
I know about this firsthand. Besides my work as a ghostwriter, I also run Almost Millions, a personal finance site for freelancers and the self-employed. Here are some of the best tax tips I’ve encountered, whether you’re hurrying to get your taxes done for April 15—which I hope isn’t the case—or for next year:
1. Consider Starting A Corporation
Depending on the state where you conduct your business, starting an S Corporation or LLC could considerably reduce your tax liability. Basically, you can start a corporation for yourself—with yourself as the sole employee—and then you draw an annual salary (that’s similar to what you’d be paid working for an outside company) from your corporation’s bank account. Client payment goes to the corporation, not you.
After the IRS approves your S corporation, it no longer pays taxes on profits. Instead, profit or loss from your corporation is passed on to stockholders. This “pass through taxation” could offer significant tax savings; ask your accountant for advice.
2. Remember Your Tax Deductions
As a ghostwriter, many of the things you’re spending money on are tax deductible. Ghosting is an expensive business.
Your magazine subscriptions are tax deductible as you’re keeping track of industry trends. So are hosting fees for your website, or cloud storage fees for services like Dropbox or Google Drive. Mileage or taxi fare to meet with clients are tax deductible. The rent on your co-working space, or your home office—if it’s a separate room—are tax deductible as well. So are the new laptop or new iPhone you purchased for work. You’re able to deduct 50% of the cost of client meals you’re paying for.
A good accountant can help you identify tax deductions and circumstances specific to your work life; in the meantime, keep all your receipts and either scan them and put them in an app like Evernote or drop them in a pouch—the IRS loves receipts.
3. Keep Track Of Your 1099s
When you work for a client like Gotham Ghostwriters, they send you a 1099 each year. These 1099s are crucial for your taxes because they help you keep track of how much money you earned as a freelancer. Don’t lose them.
As your 1099s arrive, put them in a special folder in a place you’ll remember. File them away and make sure they’re easily accessible for you and your accountant.
4. Keep Track Of Quarterly Deposits
Quarterly taxes are one of the biggest pains of freelancer life. The federal government requires quarterly tax deposits from 1099 workers, and charges hefty penalties if they’re late.
Every time you receive a paycheck from a client as an independent contractor, take out one-third of the amount and save it for taxes. That might hurt financially but it’s better than paying the IRS penalty money a few months later. What we like to do at Almost Millions is to create a separate savings account through a low-cost, online only bank like Capital One 360 or Ally. That account is only for taxes, and makes sure that tax deposit money is in a safe place.
5.Keep Track Of Quarterly Deposits
If you’re a ghostwriter, you’re most likely working as an independent contractor for your clients and you’re not a full-time employee. If you’re an independent contractor drawing money from more than two or three clients, a good accountant is crucial.
It’s important to have an accountant because, well… the tax code is complicated. CPAs and other tax professionals spend years learning tax laws and work on tax forms day-in and day-out. Although hiring an accountant might seem expensive, they will probably save you some money. In big cities like New York, Los Angeles and San Francisco, it’s easy to find an accountant that specializes in working with independent contractors as well.
Disclaimer: These tips are for informational purposes only and should not be construed as advice. Please speak with a tax professional before making any decisions.
Neal Ungerleider is a Los Angeles-based writer and content consultant.