Disclaimer: I'm Not a CPA
This guide is educational, not legal or tax advice. Consult a CPA or tax attorney for your specific situation.
That said, here's what I've learned from running an author business and talking to actual CPAs.
The Engineering Problem
The IRS doesn't care if you call yourself an "artist." If you make money, you're a business.
This guide treats author business setup as a tax optimization problem. The goal: maximize deductions, minimize liability.
By Ameen A. Mohiyuddin - I run my author business as an LLC. Here's what I wish I knew on day one.
LLC vs Sole Proprietorship
Sole Proprietorship (Default)
You and your business are the same legal entity. No paperwork required.
✅ Pros:
- • Free (no setup costs)
- • Simple taxes (Schedule C)
- • No annual fees
❌ Cons:
- • No liability protection
- • Personal assets at risk
- • Less professional
LLC (Limited Liability Company)
Your business is a separate legal entity. You're protected from lawsuits.
✅ Pros:
- • Liability protection
- • Professional credibility
- • Separate business bank account
- • Tax flexibility (S-Corp election)
❌ Cons:
- • Setup cost ($50-$500)
- • Annual fees ($50-$800/year)
- • More paperwork
When to Form an LLC
Form an LLC If:
- ✓You're making $10,000+/year (liability protection worth it)
- ✓You want to separate personal and business finances
- ✓You're hiring contractors or employees
- ✓You want professional credibility
Stay Sole Prop If:
- →You're making <$5,000/year (not worth the fees)
- →You're just starting out (test the waters first)
- →You want to keep things simple
Tax Deductions: What You Can Write Off
Software & Tools
- • Vellum, Atticus, Scrivener
- • Grammarly, ProWritingAid
- • Canva Pro, Adobe Creative Cloud
- • Email service (MailerLite, ConvertKit)
- • Website hosting
Professional Services
- • Cover designers
- • Editors (developmental, copy, proofreading)
- • Formatters
- • Virtual assistants
- • Accountant/CPA fees
Marketing & Advertising
- • Amazon Ads
- • Facebook Ads
- • BookBub Featured Deals
- • Newsletter swaps (if paid)
- • Website domain & hosting
Research & Education
- • Books in your genre (market research)
- • Writing courses
- • Conference tickets
- • Travel to conferences (partial)
Home Office (If Applicable)
Simplified Method: $5/sq ft (max 300 sq ft = $1,500/year)
Must be a dedicated space used exclusively for business.
Quarterly Estimated Taxes
The Rule
If you expect to owe $1,000+ in taxes, you must pay quarterly estimated taxes.
Due Dates:
- • Q1: April 15
- • Q2: June 15
- • Q3: September 15
- • Q4: January 15 (following year)
How Much to Pay
Rough Estimate:
• Net Profit × 30% = Quarterly Tax Payment
(Covers federal income tax + self-employment tax)
⚠️ Don't Skip This
The IRS charges penalties for underpayment. Set aside 30% of every royalty payment.
Bookkeeping: Track Everything
Use Accounting Software
QuickBooks
$15-$30/month, full-featured
Wave
Free, basic features
Spreadsheet
Free, manual tracking
Separate Business Bank Account
Even as a sole prop, open a separate checking account for business income/expenses.
Why: Makes tax time 10x easier. No mixing personal and business transactions.
5 Tax Mistakes
❌ Not Tracking Expenses
Save every receipt. Use accounting software. Deductions = lower taxes.
❌ Skipping Quarterly Taxes
IRS penalties add up. Pay quarterly if you owe $1,000+.
❌ Mixing Personal & Business
Separate bank accounts. Don't use business account for groceries.
❌ Not Hiring a CPA
Once you're making $20,000+/year, hire a professional. Worth it.
❌ Claiming Hobby, Not Business
If you're trying to profit, it's a business. Claim deductions.
Author Business Setup Checklist
Treat Writing Like a Business
The IRS doesn't care about your muse. Track expenses, pay taxes, maximize deductions.