Okay, now that we’ve been talking about how to use spreadsheets, let’s talk about accounting! No, wait, come back, it’s not scary, I promise! We have Christ Morris, a CPA, a writer, and a CPA who helps writers, to walk us through beginning and not-so-beginning accounting for authors.
<p>Writing is only part of a writing career -- no one warned us that we would need business acumen and entrepreneurship to be an author. Whether you're traditionally published or an independent self-publisher, it's good to have a leg up on accounting, marketing, time management, and other key skills.</p><br><p>These recordings of live discussion on craft and development, on business best practices, on explorations of fascinating and inspiring real life cool stuff, and more will help you along your writing journey and career development. Join Laura VanArendonk Baugh as she shares what she's learned and what she's learning. (Or join the weekly live discussion with your own questions!)</p><br /><hr><p style='color:grey; font-size:0.75em;'> See <a style='color:grey;' target='_blank' rel='noopener noreferrer' href='https://acast.com/privacy'>acast.com/privacy</a> for privacy and opt-out information.</p>
Accounting for writers and creative entrepreneurs! Chat with CPA Chris Morris to learn how to handle – powered by Happy Scribe
Good evening, everyone,or at least it’s evening for me.
I know some of you may be experiencingmorning on the other side of the planet
or later whenever you comeacross this so good day.
Have a lovely day.Yes.
it is Tuesday here in the land of Laura.
And this is another episode of To Write And Have Written, and that is two weeks
in a row that I have rememberedto actually introduce the show.
So definitely, definitely getting better.Hello friends in
the chat.Thanks for stopping in and saying hello.
we’ve got somefun stuff happening tonight.
First, I do want to just quickly mention,this is not the fun stuff,
but if you’ve been here on the on the showregularly, one of our regulars,
Natalie, Bridger,she’s BridgerDogs
in the chat.
And I doubt she’s goingto be here tonight.
She had kind of a rough day.So if anybody happens to know her
on social media, it might be a good dayto hop over and say something kind.
So I just wanted to say say that.
And then on a much happier note.
Much more fun note.Yeah.
So it’s December 1st, which meansNaNoWriMo has officially ended.
Hooray.All of us who survived NaNoWriMo.
And I did.
I did when I put in a little over 60 K,so I’m very proud of that.
But one of the things that
when you when you complete NaNoWriMo,
you get your winners goodies,I think they call them.
And so you can get a bunch of discountsand all kinds of fun stuff.
Seeker won NaNo too! High five,virtual high five.
one of the things was a discount codefor World Anvil,
I’d heard of World Anvil, but Ididn’t really know that much about it.
I was like, hey, I got a discount code,I’m going to go poke at it and oh my gosh,
they’re starting a world building eventfor the month of December and.
Oh, okay, I’ll check this out.Notice.
Oh, look over here and say, hey,there’s your ShyRedFox has commented
on something on the site,so I’ll check that.
Oh, ShyRedFox, who again is oneof our regulars here on the show.
She’s commented on a lot of things.
She’s written a lot of their blog posts.
She’s actually like a really big deal.
And now I’m like, oh,how did I even miss this? So,
oh, hey Bridger, you are here.
OK, thanks so.
And anyway, so ShyRedFox, Amy,
if you are in the chat,I’m now in awe and I have joined
World Anvil and I’m trying to followyour lead, so thanks for putting out some
good examples there and wewill try to follow you.
So oh the only reminder I had wasit’s the top of the month.
So if you have subscribed with Prime,
which is your absolutelyfree way to support this.
Use your Amazon Prime membership,you get a free subscription on Twitch.
And so it’s time to renew that.
If that’s how you do it.
I very much appreciate that.
Or please, I’m I’m still running the “helpme clean my house” pandemic sale.
And I would love to send you some books,so I would also appreciate that.
I just I just saw the ShyRedFox Amy hashas replied to me in the chat and.
So now I’m going to go learn allthe things from your tutorials.
Thank you so much.OK, and then.
And then because nobody wantsto listen to me talk about my world.
But I will say though, the World Anvil,because I’m just writing about world
building, which basically at this pointI’ve been living in this world for years.
So it’s like writing nonfiction because
it’s not actually writingdialogue and emotion.
I’m writing nonfiction,but about fictional things. Anyway.
They want me to write ten thousand wordsin a month, and I had like more than five
thousand by this morning at three a.m. Soyeah, it’s going to be fun over there.
But all of that aside,we have a guest tonight.
I’m going to try to bring Chris in.Hey, we go.
And I’m going to rememberto actually turn on his audio.
Look at me.I’m such a professional.
Yeah.So welcome, Chris.
So as you guys can see on the screen,we have Chris Morris, CPA Dot com.
That gives you a good indicator,
along with all my promo on whyChris is joining us here tonight.
He is an author.
He writes nonfictionon a variety of awesome things.
I have to mention.Whispers in the Pews.
Really good topic.Perfectly Abnormal is another book.
But honestly, the one I want to say,
just because I love the title is Oh,SNAP, I’m Making Money Now What?
Which is what he’s hereto talk to us about tonight.
Chris is a CPA
who specializes in working with,I have to say this very carefully,
creative entrepreneurswho need accounting.
Because every time I say creativeaccounting, I feel very sketchy.
So I need to say that carefully.
I met Chris at a conferencefor the first time some years ago.
He’s just a fabulously nice guy.
I have called him
with accounting questions,and he didn’t hang up on me,
which is probably the bestendorsement I could give him,
but I did want to ask him to come tonightand answer accounting questions for us.
And so I’m justcatching up on the chat.
OK, we’re good, OK, I wanna makesure I didn’t miss anybody.
So I do want to just preface ouraccounting discussion with, I know we have
we usually have severalauthors from Oceana.
I know we’ve been seeingsome replays in Europe.
We have people here from manydifferent states, even in the US.
So this is definitely not Chris
giving you legal advice for yourparticular personal situation.
So with that clear, all that
he does have fantastic information
and you probably can contact him privatelyfor much more specific information.
But that is not what weare doing here today.
This is Chris chatting with me about
generalities and then telling you whereyou can find very specific information.
So, all right.
With all of that,
let’s just start by saying why?
Why do I need to do my accounting?
Why can’t I wing this?
I’m a writer.
I like words.
Numbers used to beat me upon the playground behind the school.
Like, that is not what I do.
You know what, I know
honestly, that’s that’s the attitudeof a lot of writers,
which I’m sure you have encounteredwhen we call you in tears or whatever.
So, so coached me throughfirst why this is important.
I shouldn’t just pretend that itdoesn’t exist until they come for me.
I mean, I guess that’s a good reason
to saying let me start by sayingI’m sorry, the numbers beat you up.
That’s a really sad thingthat really makes me sad.
I’m going to shed a tear.That’s a real tear there, I promise.
Beyond that, beyond the terrible joke,
I’m a CPA, I’m required to havea few terrible jokes.
You know what?
You’re a CPA, we give you allthe latitude for the jokes, right.
Because we know thosedon’t come naturally.
So we’ll work with you.Coach you along.
I have been accused of being one of theonly accountants with a personality.
I don’t know if that’s good or bad.
I guess I’ll let you guysbe the judge of that.
So, I mean, sort of the bottomline reason why you need to
worry about showing your accounting isspecifically on the revenue side is
because the IRSis very interested in making sure that any
revenue that comes in that theyget their their piece of.
the good news with for a lot of authors,
is that especially when you’rein the beginning stages of writing,
if you just have it,you know, you’re you’re younger and you’re
in your craft, then it’s not going to bethat difficult for you to actually report
a loss, meaning that youspent more than you earn.
I know that’s usually howit feels for me anyway.
I feel like I usually spend a lot morethan I earned in my writing enterprises.
But the reason that you need to the reasonthat you need to worry about it is because
the IRS says so. It’s kind of thatstraightforward.
and I was told by another CPAwho also made terrible jokes.
So I know he was the real thing,
that because there are certain, I guess,
categories, you know,that will be more likely to trigger
an audit or
the heavy IRS side or something.
And one of those being the entertainment
industry, they’re used to a lot of, you know,dubious write offs from, you know.
And so even though I am notan A-list Hollywood actor or a
rock star or, you know,outside of my own mind, that
because I fall into the entertainmentcategory, I’m still more likely to trigger
something just because of thecategory that I’m filing in.
Have you found that to be true or isthat just Internet rumors or or what is?
I saw this person in real life.He was an actual human.
there’s definitely some truth to that.
It has to do with the
the category of businessthat authors should be filing under.
It’s the same category, unfortunately,
as as your other CPA friend mentioned,that that anyone who is
in the entertainment industryis going to is going to use.
So so there is you know,there is some additional risk or
for authors to potentiallygo under an audit.
But the good news is that I like to say I
like the you know,an audit is not a bad word.
It’s not the A word,you know, and all it all it really is is
it’s a request for additionalinformation. As long as you
have all of your documentation ducksin a row, you’re going to be fine.
I have you know,
I was a I was the accountant fora mid-tier publishing
publishing house that had aterrible set of circumstances and ended up
recording like a three quarterof a million dollar loss.
So obviously, the IRS is like,tell me about that.
Yeah, because that’s a lot of money.
And,you know, I was able to walk through
the audit with with IRSauditor and with my clients.
And there was there was literally
no impact to anyone’s taxesas a result of the audit.
So the big thing that I want to sortof point out to everyone watching or
listening later is that the auditis a request for more information.
It’s only if there’s a finding
that that there’s going to beany change to your taxes.
And even so so let me walk throughwhat a finding might look like.
They might decide that five hundred
dollars that you spend is notconsidered a taxable deduction.
So so that would mean that your taxable
income would increaseby five hundred dollars.
You would only have to pay whatever your
tax rate is, an additional tax,we’ll say twenty five percent.
So most people are somewherearound twenty five percent.
So what that means is that you would havean audit finding of one hundred
and twenty five dollars,which isn’t the end of the world.
So, so there’s a lot of fear and a lotof anxiety around audits that really is
unfounded fear that oh they’re goingto take my house and take my children.
Depending on your kids, maybe you’re like,
I don’t know.
Sorry, that bad joke number two or four,depending on how you’re counting.
We got time to go like,yeah, there’s no quota here.
So take it.Go for it.
So I just want to respond.
When you say and I completely get this
from your professional perspective andyou’re like, oh, that’s not a bad word.
Audit’s not scary.
And then over here we’re like,audit is like heart attack material.
Because there’s there’s there’s two
reasons that that immediatelycome to mind for me for that.
And I’m just going to play likewriters advocate over here.
So where the where the.
Yeah, where the people over here a couple
of weeks ago we had our last, I don’t know,I’ve lost two weeks ago.
Yeah.We had our introduction to spreadsheets.
The spreadsheet is notbigger and meaner than you.
You can you can withstand thiskind of thing.
but I had a relative who was audited
in their full time businessthat they owned, which is fine.
And so that they came in and they sat down
just, you know, oh,hey, how are you doing?
Have a seat.Great.
You know, so you do X for a living.Yeah.
Do you like what you do?Oh, yeah.
It’s a lot of fun.OK, that’s a hobby, not a business.
So we’re going to doeverything in at a different rate.
And I’m like, that was the full time job.
But that was like that set up question.
so yeah, like I just come at this goingworst case scenario. I’m a writer.
I can do a lot of worst case scenarios.
They can get very bad.
So but what you said then about it’s nota problem if you have all of your ducks
in a row, like, OK.I’m pulling out my spreadsheets,
I have all my very orderly ducklings,like here are my mallards here.
And, you know, I’m think it’s soso what I what I’m hearing is that
we can put off that panicif we — have it on backburner just in case.
But if we’re all set up like
you’re going to talk us through tonight,then then it’s not as terrifying.
I like how you said it’s just a request
for more informationthat that actually does help.
So, yeah, because really,if you so so what produces an audit is
there are a bunch of people that that areso nerdy they make me look cool,
run these programs based off of allof the tax returns that come in.
And and it’s sort of like putting
checkmarks next to tax returnsbased on certain characteristics.
And if and if there’s either enoughcheckmarks or a particular tick mark is
put in that, then that tax returnis picked up and is put into
“We need to audit this.We need to find out more information.”
That’s really all that it is.
It’s not an accusation.
It’s not an assumption of guilt.
You know, sort of like in the law field,
you’re innocent until proven guilty,almost said guilty until proven innocent.
I might feel more like what it is,but that’s not what it is.
So if I’ve got my,I haven’t had my audit.
so that I can, by
Murphy’s Law, not ever get auditedbecause I’m so ready for it
and I am organizing all of my ducks.
How many ducks should I be tracking?
Let me translate that question.
You know, what are the kinds
of things that we should beI mean, obviously, if I.
Spend money on a book cover,that’s an expense.
You know, if I can if I’m traveling
to a writer’s conference,how much of that is an expense?
And I’m not looking here for,
like, give me a complete listof deductions, because obviously that’s
going to be, first of all,fairly individual.
And secondly, it’s going to vary by
listener geographyand local law and all that.
But I mean, just when I think
it’s sometimes it’s hard for people
who don’t think in this dimensionto actually look at what are the things
that I should be tracking as far asincome and outgo and what is an expense.
And that sort of thing can give ussome guidelines that we could go to.
so so at leastin the in the United States,
the IRS sort of top level guideline isthere has to be something that’s
reasonable and necessaryto run the business.
And they leave it that way becausewhat’s reasonable and necessary in one
business is not reasonableand necessary in another.
Let me give you my favorite example.
If you’re one of those people,if your business is you own gumball
machines, then spending ten thousand dollarsa year on gumballs 100 percent makes sense.
It’s really hard to have a gumballmachine business without gumballs.
If you’re a writer and you spend ten
thousand dollars on gumballs — number one,you probably have an issue.
Number two, you’re a little weird.
Number three,it’s not going to be a business deduction
because it’s neitherreasonable nor necessary.
So so that’s where I wantto start is with that concept.
You really want to ask yourself
the question,you know, in order to to run this business
of being being an author,is this reasonable and is it necessary?
So so that includes, you know,
any sort of Web hosting expenses,any conferences that you go to,
the travel to those conferences,the mileage is deductible,
you know, wherever you go,when you’re staying at a hotel
or a conference, obviously in a post postor pandemic world, because we don’t have
conferences right now in 2020,we have stuff online.
All of that stuff isconsidered deductible.
I had a client who wrote,who did a retelling of a a Russian
folklore essentially,or in a fantastical sort of way.
And she needed to travel to Russia becauseWikipedia can only get you so far.
And she had about ten thousand dollarsand write offs that were completely
legitimate becausethere was book research.
So research trips,as long as you’re careful about them,
really, really can be acan be reasonable and necessary.
Let me talk about in the context of aresearch trip, what makes it necessary.
The reasonable part is easy.
You can’t like I said,you can’t Wikipedia everything
It has to be you have to be able to say
going to X, Y, Z is directly relatedto the book that I’m writing and intend
to publish or have publishedbecause and finish that sentence.
If you can’t finish that sentence in any
reasonable way, then it’s not necessaryand it’s just a non-business expense.
That’s a really good formula to have.I guess so.
So my client had a mixture of things
that were that,that were business deductions and were not
business deductionson this trip to Russia.
The good news is that all of the flightsand all of the hotel stays in it and all
and most most of the taxis and the Uberand such were all those were all
deductible and that wasthe majority of our expense.
So that’s you can’t very well getto Russia without getting to Russia.
So that’s really interestingfor me as a person who likes to write,
you know, all over and Ipull from so many things.
But I I was in Denmark researching for TheSongweaver’s Vow, which is a Viking era
the way I chose to do it,
because I was just so cautious and Ididn’t want to overplay
was I didn’t write off the flights, but Iwrote off, you know, like museum entries.
And it’s Denmark most of the museums arestate funded, but all of the things,
all of the places I went and thethe things I paid for access and all
of that, those arethe things that I wrote off.
But I didn’t write off the flights becauseI didn’t know how plausible that would be.
So I’m glad to hear that, you know,
in the future, when we travel againin 2052,
I will be able to that’s somethingthat I could plausibly, conceivably
make an argument for because.
influenced how things
went down in that novel,you know, out the settings
over so many of the things I took straightfrom reenactments that I was there for.
it would have been a completelydifferent book without being there.
OK, that’s good to know.
I’m going to put that on my “somedayI will travel again” list.
So let me ask, and ifthis is getting into too much,
you know, your situation is individual,
then just let me know because I’ve gotplenty of other things we can talk about.
But something like
I’m just going to say,
Venice, because there’s lots of greatthings that could be set in Venice.
So I want to go to Venice and I want to dosome research and it’s going to cost me.
And let’s use your your client’s figure often thousand dollars to do all of this.
Do I need to be able to say and I canreasonably predict making ten thousand
dollars off this book in a yearin order to be able to deduct that?
Or is it are they moreopen to a long range?
I am putting this book in my catalog and Iam building enough catalog that long tail.
It’s going to pay for that kind of thing
because I’m guessing that if I put in tenthousand dollars worth of business
deductions for a book that netsme a hundred dollars and change,
it’s not going to be as easy to supportthat as a legitimate business.
Maybe I’m wrong, but that’s I would be suspicious of me.I’m really glad you’re you’re
framing the question that way.So the you know,
the broader question that you sortof speaking to is that it is,
you know, when does writingbecome a business rather than a hobby?
How long is the view here?
Yeah, yeah, yeah.
And there isn’t a there isn’t astraightforward answer to to that.
It’s very it’s largely dependent
if you’re lucky enough,lucky enough to be audited
and and and then
that the specific view of that particularauditor because I, I’ve seen
I’ve seen clients go through audits wherethey are recording,
you know, six to ten thousand dollarsof loss every year for six years because
they’re just strugglingto find their their niche.
They’re just not
they’re tryingit’s just not going that well.
And there’s been no problems with that.
And I’ve also had peoplego through audits where
where where a completely reasonablebusiness expense was, what was questioned.
And and then and thenthey quickly move to,
“Well, I’m not sure that, I mean,this isn’t really a business.
I think you just have a hobby.
So justify your business.”
And it was almost as quick as what youwere saying where where your friend had
said, yes, I enjoy what I’mdoing is my full time job.
Oh, then it’s a hobby.
It was almost that quick.
So so there’s a bit of dependency upon,
you know, who the auditor is and whatthe specifics are of those expenses.
But generally speaking, I don’t think,you know, there isn’t a need
to tie expensesto future revenues directly.
Here’s a factoid for you to sort of prove
that point means that businesseslose money all the time.
Amazon didn’t post a profituntil 2009 in a single quarter.
And when they did,Jeff Bezos apologized for it.
So are you sure that that they werea company before 2009,
I sure we were all addictedto their services before.
So I’m absolutely aware of a lot of thosecorporate tax because they can take
that and reinvest in theirbusiness and do all of the things.
And, you know, my sisteralso works in entertainment.
She’s an actress.
And there’s so many of the things that,you know,
a Hollywood film company willnever make a profit on a film, ever, ever.
So you’re never going to get royalties
because they are never goingto make a profit kind of thing.
So, yeah, that that I’mglad you pull that out.
I just I always look at that.
Is that something thatsomebody else can do?
It’s just part of the mindset switch,of learning like that.
So the biggest challenge I have in working
with authors is to think of all of theircreative enterprises as a business.
So think of it more like Amazon and less
and less like a hobby,even even though you’re you’re treating it
as a business for tax purposes,a lot of times people don’t
really, they’re not mentallythinking of it as a business.
So they draw a distinction between, well,(that is so true) Amazon can do that or GE can do that,
but I can’t because I’m just a little tinybusiness and the most important word
in that is “business.”No, that is so true because,
I mean, I think culturally we draw such
a distinction betweenthe arts and “real jobs.”
So there’s that mental hurdlethere in the first place.
But, yeah, as a person who owns basicallytwo small businesses, you know,
I have my my my trainingand education and behavior business.
And then I have my, you know,
writing business and one’s an s-corp,one’s a sole proprietor.
So they’re totally different.
And I and I, it is a mental hurdle for meto say this is a business expense, too.
so thank you for bringing that up
and going to the next time I hesitate,I would be like, no, no.
Chris told me I’m a business, so.
Guys, I forgot to mention.
But if you have questions for for Chris,please put them in the chat.
Otherwise we’ll keep going.And that’s fine.
But absolutely feel free to bringquestions if you have them.
So I’m collecting my things.
I’m getting my business expenses.
I’m starting to think of everythingas business expenses.
And I just mentioned s-corpand sole proprietor.
And then there’s likean LLC out there too.
How much of this as a typical writer
who’s not named Stephen King,do I need to be aware of?
And how much worried do I need to do andto like do I need to pursue one of these?
You know, at what point do I need topursue one of these, that sort of thing?
First of all, what the heck is an S corp
and an LLC? And,yeah, all of these things.
Let’s start with basic definitions.
S-corp is short for small corporation.
An LLC is a limited liability company.
That’s what they stand for there.
They are state level designations
for types of businesses that havecertain tax ramifications.
So an LLC has what’s called a disregarded
entity by the IRS, which means that therearen’t tax codes specifically for LLCs.
An LLC can be taxed however you want it
to be taxed, which is both helpful andmildly confusing, to be honest.
So it can be, if you have more than one
person involved,they can be taxed as a partnership,
it can be taxed as an s-corp,they can be taxed as a regular
corporation, or it can be treatedas a sole proprietorship.
Oh, I forgot to definesole proprietorship.
If you don’t have anything else,
if you don’t have a specific formof company that you’ve
intentionally created, then by defaultyou have a sole proprietorship.
It has means there’s one owner and you
you’re the proprietor, you’re the ownerof that business and it’s yours.
And the way I think of this and tell me if
I’m doing it wrong ortelling people wrong,
you know, an s-corp or LLC
that the business does its owntaxes, and a sole proprietorship,
the business taxes and my taxesare the same taxes.
Is that a good way to break that downor is that leading people down?
That’s definitely true for an S.Corp.
And I see a lot of times if it’s a single member LLC,
then it’s still going to flow throughon this person’s personal taxes.
so it’s not that’s not always true,certainly for an S corp.
So let’s talk about when and why it might
make sense to incorporate and why it mightmake sense to incorporate as an s-corp
generally, in terms of level
of complexity,you have sole proprietorship
at the bottom, it’s the mostsimple form of organization.
Then you have LLC, then you have s-corp,then you have a regular corporation.
None of you are ever going to beat a regular corporation level.
That’s like the John Grisham’s
and the Stephen Kings of theWorld.
Come see me in three years.
Yeah, I got that question further down.Yeah.
By the way, Amy, in the chat,I see your question.
Let’s wrap this up and thenI’ll bring that up to Chris.
So, gotcha.OK, sorry.
Go ahead.It’s OK.
It’s OK.It might seem dark.
Do I need to turn on the light.
Is it doing a little better.
I’m looking at it was wewere talking about math.
So dark is appropriate.
But if you would like, if you have a lighthandy, I would we would appreciate that.
So the only bummers that’s going to be
behind me, which is goingto have a bit of a glare.
Well, if it’s going to be behind you,it might put you in silhouette and it
would feel like an actual audit going on,like just the dark, face you, like.
Except I don’t have anything else.No, we’re fine.
OK, this will get rendered asa podcast in the future anyway.
So, yeah, we’ll just we’ll tell everybodythat you were sitting here looking very
ominous or possibly if you slouch justa little, get a halo and then you can be
like the the hero accountantcoming to save us.
All right.So that’s awkward.
So, OK, so actually let me just jumpin, with LLCs, as we were.
No, go ahead.
We’re going to jumpin with a question, OK.
Right.But if you were if you were going
to finish with LLC, let’s let’sby all means knock LLC out.
OK, OK, so the primary benefit of settingup an LLC comes back to that question of
are you is your writingbusiness actually a business?
One of the things that the IRS looks outto see if your business is is an answer
to the question, is this organizationacting like a business or not?
And forming an LLC is one of several
things you can dothat is sort of a checkmark.
And yes, it’s acting likea business side of things.
Other things that are in that category
would include having a separate businessaccount, having a separate
business credit card, not mixingbusiness and personal expenses,
things like that.
That’s a primary benefit of having an LLC.
To be honest with you, there isn’t,because you’re probably going to have
a single member LLC and it’s still goingto flow through on your personal taxes.
That ends up beingthat the primary benefit.
So if you in the case that you are
audited, it would be beneficialto potentially have an LLC.
Now, I want to sort of back up a littlebit and say in some states that the fees
are so onerous for having an LLCthat if you’re just in the beginning
stages of your authorial enterprises,you might not want to do it.
As example, one of the mostonerous states is California.
Simply for having an LLC,
you pay a minimum annual feeof eight hundred dollars.
Oh my gosh.If that feels like a lot of money to you,
then don’t do it.
It still feels like a lot of money to me.
And I have a I have a decent sized, youknow, I’m doing OK for myself
and that still feels like a lotof money just to exist.
And if I was
based in California, which I’m not.
I probably wouldn’t havean LLC unless I had to.
Yeah, OK, so that answers the LLCquestion and then the s-corp.
So what changes when you when you forman s-corp ,because you have the ability
to wear two hats, you can wear thehat as an owner and you can wear a hat as
an employee and there’scertain tax benefits to that.
It allows you to both pay yourselfa regular payroll and take out owner
grants, while once you break about,I’d say about 70000,
75000 dollars to one hundred thousanddollars in profit,
you can start to see some tax benefitsto playing with those two hands.
Prior to that, it’s probablynot beneficial to do so.
And even that is very specificto your circumstances.
One thing I want to point out to sortof clarify what I said is
seventy five thousand one hundredthousand dollars in profit.
That’s not money in the door.
That’s money left after all your expensesother other way.
So so just make sure that you understandthat that term appropriately.
And that’s what I wanted to sayon those business formation topics.
OK, so it’s probably safe to say that most
of us, as you know, not named Stephen Kingor J.K. Rowling or John Grisham authors.
Are sole proprietorships going to besufficient for where most of us are?
Is that.Yes, OK, yeah.
That’s usually where I landwith most people that I’m talking to.
OK, well, we have a question.
Have a couple of questions in the chat.
Amy is asking, how long as a businessdo we need to keep our records?
She knows what it is for personal taxes,
but what’s the guidelinefor business records?
It’s the same guidelines,
so an audit can go back three yearsand in case of what they term
egregious fraud,it can go back seven years.
So just to be safe,not that any of you are going to be
committing egregious fraud by the IRSmight decide that they think you are.
Keep everything for seven years, OK?
Good to know.
And then a sole proprietorship question.
If you run multiple small businessesthat are sole proprietorships,
are those completely separate from taxesbecause they’re different income streams
or combined because you’re the only persongetting income spending, et cetera,
just in two different fields with twodifferent DBAs (doing business as names).
I’m translating.So it depends.
It depends on whetherthey are related or not.
I like to think of it like this.
If you could see the two
businesses on a sign together forfor a storefront business,
then it makes sense,then go for it like pizza and wings.
Absolutely.Those can go together.
Pizza and Dry-Cleaning probably not
so, so along those same lines,
if you’re doing writing,writing and editing,
then those can stay together becausethey’re both going to fall under that same
category of independentauthor, artist, entertainer.
But if you have two completely separatebusinesses that are in completely
different categories,then there would be recorded.
They would be reported separately.
OK, that’s a good guideline.
I like the pizza and wings like I can.I can do that.
This is a distinctionI feel comfortable making so good.
Amy says thank youfor answering her question.
It’s great, OK, so so now that we’ve just
talked about a bunch of scary acronymsand seven year audits and like all
the terrifying things,a smooth out again
Oh,actually, I’m going to interrupt myself
because Natalie’s followingup on her question.
And so let’s go ahead and get into that.
This mostly because I’m going to be very
selfish, because it kindof applies to me, too.
But she says her two businesses are dog
training and fantasy novels and trainingmanuals, which is the muddy part.
And I’m in the same boat where I have
several behavior booksthat sell really well.
And they’re so it’s like not my fantasy,but it’s not also not training.
It’s books.So so what do we do with that?
And probably so I, I’d keep the books
the dog training or the training books,=on the author side,
not on the dog training side,because the dog training side is a
different type of service that you’reproviding, whereas the book is a product.
So, so you can make the distinctionat that level as well.
That’s that’s a reallynice easy distinction.
Products or services.I like that.
So also it’s what I’m doing.
So I’m glad that you said that.So good.
OK, all right.
For me it was just way simpler to keep allthe books under one rather than trying
to break out royalties monthlyor anything like that.
Because it’s my behavior.
Yeah, my behavior business is the s-corp.
So I that would be a completely,
that’s more math than I signed up to do.Right.
So something I didn’t tell you,
but as long as we’re on the stupid joke,you know, platform for tonight,
I was very, very temptedto name this thing —
I still have a hard timecalling it a show —
but whatever this thing is that I’mdoing here on a weekly basis,
I wanted it to be about business skillsfor authors, because most authors get
into this because we likestory, not because we like business stuff.
And so I wanted to call it, NobodyStarted Writing Because They Liked Accounting,
but that didn’tgo well in the focus group.
So, but that’shonestly how I feel like every time I sit
down to do a businessskill thing, is nobody got
into writing fantasy becausewe loved doing accounting.
This is it.
Yeah, but but we need it in order to be
able to continue writing fantasy andhaving dinner, you know, important things.
So so we’ve done like all this terrifyingstuff about seven year audits and all
the acronyms and, you know,everything we just threw out there about,
you know, why we need to haveall those ducks organized.
one of the things that I try to do a lothere is, we don’t hand you a complete list
of things and you needto have them done tomorrow.
Like, no,this is going to be a you did five minutes
on this today and you can dofive minutes on it next week.
And eventually, you know,in a few months you have a project.
So where where where do we start?
What’s the minimum?
I am a relatively novice author.
I might have stuff in process,
I’ve got a few thingspublished, and I realize that, darn it,
there’s going to be math involved nowand accounting and I downloaded
my spreadsheets and what doI need to get started with?
What are the absolute minimum that I
should start doing that Ican then build on?
So so a spreadsheet isa really great place to start.
You know, if I didn’t pay him to say that,guys, I didn’t pay him to say that.
If you don’t have a business bank account
yet, what you might not make sense to haveif you’re spending a lot more than you’re
earning, that is,then there isn’t really a great accounting
solution, accounting,bookkeeping solution out there for you.
There are some some options if you do have,even some free options if you do have
a business bank account,but all the ones that allow you to sort
of split between business and personal,the reporting for them is really suspect.
And I can’t in good faith recommend them.
So I encourage people just to just to dotwo things, keep a spreadsheet
and Google Sheets or Microsoft Excel,whichever you prefer,
two worksheets, one that’s that’s revenueor income and one that is expenses.
And, you know, the columns are goingto be the description, amounts, category.
So that’s the first thingthat you’re going to want to have.
And then the second thing you’re going
to want to have is for allof your expenses, keep
keep a copy of of your receipts.
And the thing that’s nice is the IRS about10 years ago decided to join the digital
revolution and they now accept digitalcopies in lieu of actual receipts.
I use an app called CamScannerthat I love that photo.
Yeah, it allows you to take a photoand turn it into a PDF and throw it onto
your Google Drive allin about seven seconds.
So that’s the other thing that I recommend
is assuming you have a smartphone use CamScanner and start taking
photos of all of your receipts that aren’tin email and all the ones that are
in email just put them in a folder calledTax Receipts with the year tax receipts.
2020 tax receipts, 2021.
And the thing that’s nice about havingthe folder and about having an about
having using cam scanner is it allows youto sort of batch your work
so you don’t need to feel like every timethat you have a business expense,
you need to automatically goin and put it into your spreadsheet.
Some people prefer to do things that way.
Some people prefer notto do things that way.
This allows you to do either or because
you’re going to haveeverything in one place.
Maybe you’re not a digital person like I
am, then I guess you couldkeep an actual folder.
I just that doesn’t makesense to me personally.
I try to digitize everything I can because
it’s much more difficultto lose it that way.
Yeah, you’ve got
the classic shoe box full of receipts,but then the shoe box gets full
and the lid doesn’t fit on itand stuff starts going everywhere.
And I, I lose it and it’s
I’m a big CamScanner fan too so.
And so yes, we got comments in the chat.
Amy also organizes digitallyway better than on paper.
I know, right guys?
I’m telling you, I’m going to have to doa whole
episode just on Evernote becauseEvernote does run my life at this point.
And yeah, just all the things.
OK, so we’ve just done the bare minimum.
So now let’s talk aboutthe absolute dream.
This is where on Tuesday Netflix calls me
and they’re doing a seriesadaptation of The Songweaver’s Vow.
And on Wednesday, Amazon Prime calls me
and they’re doing a series adaptationof the Shard of Elan series.
And on Thursday, I realize that
maybe I’m going to need someaccounting adjustments.
I don’t know, maybe not.
So when do I know if I need to upgrade?
This can be interpreted aswhen do I need to call Chris?
When do I need a professional?
When do I know I need to be doing
something differently thanwhat I have been doing?
Let’s be honest.
It’s going to take me a while and Thursdayto come to that conclusion because I’m
going to be so hung overon dark chocolate.
It’s not funny, but, you know,what would be the
the process there when I’m, like,huh, I need to change what I’m doing.
What’s that?What’s the dotted line?
Well, let’s start with let’s startwith answering the question.
When would it make senseto to hire someone like me or me?
And then we can talk aboutprocesses after that.
They’re sort of, there are three situations
that I tell people that would makesense to consider hiring a CPA.
One of them is
if you’re making more than,it’s very objective.
If your profit is more than
around 40,000 dollars a year as an author,then you really should have someone else
looking at you’re looking at the booksand making sure that you’re not missing
deductions because the tax rate isgoing to be pretty significant.
The tax hit can be upward of 40 percent
and you want to pay 40 percentof as little as possible.
So that’s the objectiveguideline that I give.
And then there’s a couple of subjective
ones that could bringthat 40,000 down a lot lower.
The first one is time management.
If you’re literally not able to get to
writing projects that youneed to get to in your life
because you’re having to manage yourbookkeeping, then it’s probably time
to hire someone to dothe bookkeeping for you.
You can find a bookkeeper that can do
stuff for you for like 20to 30 dollars an hour.
An average author is going to takemaybe two hours of time a month.
So that’s a fairly small investments.
And then the second category of subjectiveis so we all have that one thing that we
hate with the passionand fury of a thousand suns.
If taxes is that thing for you,then it’s probably going to make
sense to just get that off of youremotional radar as quickly as possible.
You know, I work with and,
you know, to toot my ownhorn just a little bit here.
I work with everyone from the folks who do
have the Netflix adaptations to folkswho just published their first book.
And I’m familiar
with and comfortable withnavigating both sort of extremes there.
And you’re not going to findthat necessarily if you go to like
an H&R Block or Hewlett Jackson, they’re not going to be
familiar with how to manage an author’sworld, which I am because I am an author
and because I about 75 percentof my clients are authors.
To answer the question, how do youknow if your system needs to be fixed?
The short answer isif it frustrates you or you stress out
every time you think about it,it’s time to change the process.
You know, at some point you’re goingto how you’re going to have
enough expenses or you’re going to haveto be bringing in enough revenue.
We’re opening a business accountis going to make sense for you.
And once you do that,then there are different recommendations
that can make for youbeyond the spreadsheets.
If you like the price point of free,then wave apps dot com
is a wonderfulbookkeeping software.
They have terrible customerservice and support.
But there’s just the program usuallyworks, so it’s usually not a problem.
And I like their price point.
Free is a nice price point.And then of course,
there’s QuickBooks, and an alternativeto QuickBooks is Xero.
It’s an Australian counterpartor an Australian competitor.
That is a little a little more userfriendly, in my opinion,
and a little less expensive and a littlemore consistent with their pricing.
So those are the threerecommendations I would give.
If you’re at the point where you have
that business bank account and you wantto see the transactions flow
in automatically through a connectionwith your bank, and you just want to be
responsible for coding, what categoryof those transactions fall into?
I hope I answered that question.OK, yeah.
Yeah, that’s good.
And I,I think you have a really good point
about, you know, subjective is also like,oh, it’s also a legitimate reason.
you know, if definitely if I am if thisfrustrates me so much that it’s not
getting done, then for crying out loud,pay somebody to do it so it gets done.
Like, that’s that’s fair.
I’ll just throw in on yourobjective point as well.
I had such massive guilt
hiring somebody to do some work that Iwas completely capable of doing.
But I also wanted to get my book written.
And, you know, I there’s at somepoint I’m going to need to sleep.
And and I was finally what broke me down
was like, OK, I can makeX per hour doing this.
This person costs me Y per hour.
X is more than Y, therefore youhire them and get the stuff done.
But that’s not the,
that’s not how we’re frequentlyconditioned to look at things.
So so having permissionto to quantify it in that way
is really good because I think we
we don’t necessarily come in with that,with that viewpoint.
So, so that’s good to hear.
and and yeah, I’ll just throw in my opinion
that absolutely nobody asked for, as somebodywho has used both QuickBooks and Xero.
I’m back on Excel because Ifound it much less frustrating.
So there are many correct answersto doing this, guys, like we usually…
There’s there’s lots of ways, and if it’sgetting done, it’s getting done, right?
There we go.
and then a really important question.This is big.
I have a lot of personalinvestment in this one.
Can I take dark chocolateas a business expense?
Milk chocolate? Yes.Dark chocolate? No.
It’s written in the IRS code.
But it’s so much more concentrated.
Like I get so much morevalue for the same.
So OK.And I can track it so that…
Also no to coffee, unfortunately.
Oh those monsters.
So I do want to mentionChris on his website has a, you can sign up
for free monthly tax tipsspecifically for authors.
It’s not going to spam you.It comes out once a month,
but it’s good information and you canget a free ebook from him as well.
And is there anything elsethat you would like to plug that?
Oh, and I want to mention he has a freeconsult, which I took advantage of.
And it was so helpful and so good.
I tried to pay him anyway and hewouldn’t let me because he’s a nice guy.
So definitely I’m going to say, you guys,
if you have questions, check out hisinformation, check out his books,
you know, find it,find the stuff on his website.
And is there anything else youwould like to plug, Chris?
Because this is your moment.
The only other thing I’d like to plug isI do have
if you’re interested in taking evenan even deeper dive into taxes
for authors, I do have a about a threehour course that walks through.
We covered about 15 percentof what’s covered in the course.
You can find that at learn.chrismorriscpa.com. That’s it, because I thought I remembered
seeing a course and I went and Ilooked for it and I didn’t.
I must have missed the link offof your main site or something.
So I’m just going to repeatlearn.chrismorriscpa.com is where
you can get a free course for authorsall over this stuff.
Not free.I lied.
I completely lied.We’ll just scrub that from the record.
It never happened.
It’s a three hour course that iscompletely worth it because.
OK, guys, I’m goingto tell you a true story.
And this is I really hope this doesn’tcome back to bite me as I send this out
into the Internetwhere it could go anywhere.
I contacted Chris and said,hey, Chris, help.
There’s a warrant out for my arrest,which, first of all, was not my fault.
Like one hundred percent wasa state paperwork error.
Not anything to do with me.
Secondly, I cannot tell you how insulting
it is that my only warrant for my arresthas to do with twenty dollars of missing
sales tax and not for anythingmore interesting.
So, so angry.
so where I’m going with this is, this is
definitely the kind of thingwhere it pays to be proactive
because you know that everything we saidabout audit is the A word and it’s
horrible thing, like opening that letterand being like, hey, we have a warrant out
for your arrest because youhaven’t done your taxes properly.
First of all, I haddone my taxes properly.
Secondly, they were hardand it was messed up.
And thirdly, I really needed somebodyto hold my hand while I was angry.
So these are the things that — it’s fine.I didn’t go to jail.
It really was a state paperwork errorand it really was not my fault.
So I’m just going to put that out there.
Butthis is the kind of thing that the default
position for a lot of us as creative,artsy people is, wow, I don’t like this.
I’m going to pretend it’snot affecting my life.
But please take advantage of the resourcesthat Chris has put out there.
You know, don’t don’t put yourselfin a situation where things can go wrong.
So, like, there’s a shortstory in there somewhere.
It was not a short story.
It was at least a novella.
And there was enough angst to turn it
into like a soap opera series,like it was full of drama and fury.
So all right.
Also, Amy, thank you.
Dark chocolate is healthyand should be a tax break.
I completely agree.
Like, contact your representatives.
We need to get this fixed in the tax code.
I wish I could change the rules.I would do that.
So and you guys can seeChris Morris CPA dot com.
Chris, thank you so much for comingand talking us through these things,
because this is the stuff thatnone of us really like to talk about.
I’m sorry.I know it’s your thing,
but I’m over here like, oh,so many spreadsheets, so close up.
also, like, we really need that in orderto do things like put out more books.
It was a pleasure.
Thank you for having me, Laura.Yes.
If you guys have questions, you know, hedoes have a contact form on his website.
Again, Chris is a very nice guy.
And I want to actually jump back real
quickly, when you said you have clientsat both ends of the spectrum,
there’s a very real sense of,you know, I’m not big enough to be able
to justify getting help with this kindof thing, and I’m really glad that you
mentioned that you have first time authorsand people like it’s a continuum
and you’re going to work with peopleat all ends of the continuum.
So I just want to emphasize,you know, he’s he’s nice.
He’s not going to judge you.It’s all good.
He didn’t hang up on me whenI called him, so we’re great.
next week, our topic, I’m calling itJust Dance because it’s my show
and I wanted to.But I want to talk about that.
We have had this intenselybusiness oriented last few weeks.
Next week, it’s all about keeping businessout of our creativity and just dance.
Just do the artsy thing and how to dothe business evaluation separately and not
let it color your creative work whileyou’re doing your creative work.
So, OK, we’ve got just to let you know,
Chris, we’ve got a number of thankyou’s coming in on the chat, and
I’m glad I listenedto this on the drive home.
The accounting didn’t putyou to sleep on the road.
Really good to hear.
thank you guys and begin.
Thank you very much, Chris.
Go and check his website and everybodystay safe and wash your hands.
I will see you next week.Take care.