Ally here again to continue my series of blog posts about Things I’ve Learned in the Past Ten Years, because, as you know, this December will mark my ten year “publiversary”, so I’ve been thinking a lot about all the things that a-decade-ago-me didn’t quite understand yet. And so this is me trying to pass some knowledge along.
Today is a hard one–but an important one: money.
No. I’m not going to talk about how to make pots of it. I’m going to talk about what you should do with what you’ve got.
If there is one business management mistake I see a lot of writers make early in their careers, it’s that they don’t quite know how money works for writers. After all, many of us come from “day jobs” where we fill out a W-2 and file taxes every April. Most of us get something deposited into our checking accounts every other week or so. Most of us have business expenses that greatly resemble the business expenses of 85% of the people we know.
And then we becomes writers. If we’re lucky, we’re even writers who are earning writing income.
TYPES OF WRITING INCOME
If you’re traditionally published (probably meaning an agent has sold your book(s) to one of the big New York publishing houses as opposed to you putting something up for yourself onto someplace like Amazon.com) then you will likely earn an “advance”.
The ADVANCE means “advance against royalties.” This means the publisher is giving you some money up front to secure the right to publish the work.
For the sake of simple math, let’s assume the advance is $10,000. The book’s cover price is $10 and your royalty rate is 10%. (Note, these numbers are made up just to make the math easy. Real advances and royalty rates cover the gamut and are far more complex.)
So given the above, you’re earning royalties at the rate of $1 per book. ($10 x .10 = $1)
But since the publisher has already paid you $10,000, you won’t earn any additional money until that book “earns out”, aka sells 10,001 copies. As soon as that happens, the publisher will owe you $1.
Now, those of you who will be traditionally published will most likely be using a literary agent, and that agent is going to get a cut of whatever you earn. Don’t worry. This is money well spent. The industry standard is %15. (Not including sub rights sales like film and foreign rights. Those are higher.)
Commission will come off the top, and you won’t have to worry about cutting your agent a check. In fact, I have never written my agent a check for anything she did as my agent. She works entirely, 100% on commission, which is the way it is supposed to work.
Now, the first thing you need to do is realize that your writing income is NOT like your day job income. For starters, (in publishing) no one is holding back taxes from this money. So even though you might get a check for $10,000 you’re not going to get to keep it. Nope you need to figure out what tax bracket you’re likely to be in and then set that money aside.
Yep. It’s not enough just to set aside income taxes (both state and federal), you’re also going to get the self-employment tax whammy, so be sure you find out what that will be in your instance and set that aside as well. (note: this is the one that surprises almost everyone!)
Once you start earning this income Uncle Sam is going to want his cut, and he’s not going to want to wait until April to get it. For that reason, most self-employed people pay their taxes four times a year (April, June, September, and January).
For all of the above reasons, I highly recommend you find a good account or CPA to work with–at least initially–because this is uncharted territory for most people, and tax penalties and fines can easily eat up all of your income if you’re not careful. If you can at all afford it, get professional help with this as soon as income starts rolling in.
I hope this doesn’t scare you too much!
(But, seriously, pay your taxes!)