Saturday, May 19, 2007

Don't Quit Your Day Job - Part II

Most folks wrongly believe that once a writer has a book published he or she becomes instantly rich. While that does happen occasionally, it is unlikely for most writers. In fact, a small percentage of writers can actually make a living off the income generated by the sale of their written works, and that takes into account all those writers who get those fat advances. These folks are in the very small minority.

To illustrate, let's look at a few examples over the next few blogs:

First example: Let's assume that I just received an offer for my romantic suspense novel. Depending on who the contract is with and depending on whether or not I have an agent (who will take a percentage - normally 15 - right off the top) I can expect on average an advance of a few thousand dollars as a first time novelist. Let's say that advance is $5,000. Advances are often paid in two installments (first half when the contract is offered and the second half when the book is published) and go against future sales. Given the time between when a book is accepted and when it is actually published we will assume that the two royalty payments are in different tax years. Oh BTW - not all publishers offer advances.

SIDE NOTE: According to Jane Friedman of Writer's Digest Books speaking at the Aurora, Il Literary Festival this past June, 30% of all books where an advance is paid never earn back that advance for the publisher. What does this mean for a new writer? You may not get another offer from that publisher since your book didn't earn back your initial advance or if you do your next advance will be less than your first or none at all.

Okay back to my example. So, I now have $2,500 in my bank account ($2125 if I have an agent). BUT I obviously had expenses leading up to the sale of the book and I obviously have living expenses. If I'm married or have a day job the impact of this on my living expenses will be somewhat mitigated.

Let's say my expenses related to producing my novel (my product for sale) total $500 and to keep things simple let's say it's my only income. So, my net income on my Schedule C (Sole Proprietorship), which is part of my federal income tax return, will reflect gross income for my writing business of $2,500 minus the 15 percent to my agent or $375 and minus the $500 for my expenses leaving me with a net business income of $1625.

The $1625 is carried over to the federal 1040 tax form to be included in the calculation to determine income tax (if this is my only income my exemption and standard deduction will most likely zero this out). BUT as a small business owner - which is what a Schedule C is I may also owe self-employment tax.

Remember that I'm not receiving a W-2 for the $2500 because I don't work for someone else who is collecting and paying what's called payroll taxes to the respective government agencies - think medicare and social security and other taxes. Self-employment taxes are essentially applied to small business income of $400 or more net income and it's essentially a 15% tax (See IRS Form SE for the exact calculation). So, even if I wipe out my income tax I still owe self employement tax which in this case is $230. And if I didn't make an estimated tax payment during the quarter(s) in which I earned this money I will have to write a check to the federal government, and there might be penalties involved for not making those estimated payments. I just depends on my overall tax profile.

Oh, and I may even owe state income tax depending on where I live.

And BTW - royalties from most publishers are paid quarterly or even semi-annually. Again, there are not withholdings for taxes because it is the responsibility of the small business owner - you the writer - to make those payments, hence the quarterly payment process.

So you see, just because I received an advance for $5,000 doesn't mean I get to keep it all and doesn't mean I get it all at once.

Next time, we'll change the scenario and run the numbers again.

Thursday, May 17, 2007

Don't Quit Your Day Job - Part 1

I managed to squeeze in 45 minutes worth of revisions on my romantic suspense on the train the other day -- the train I take home each day after work. The crowded, noisy train. I can usually block everyone out - I don't know them so it's easy to ignore them. I put my head phones on, tune out the people, tune in the music and try to lose myself in my story. Most of the time it works.

When I'm tired it's harder to do.

At home it's harder to ignore my family -- including the dog. So, it's harder to write, most of the time when we're all home together. I'm tired at the end of the work day and all I want to do is veg on the nights Todd and I don't go to the gym.

I find myself wishing I could quit my day job and stay home and write. You know how that feels. That sense of longing when you say to yourself, "If only I could do X, I'd be so happy."

But then I run the numbers. The former army engineer in me can't help it. The IT support person I am now won't let me do anything else. So, I run the numbers and I run them often to see what my options are.

Reality is that my husband and I have worked very hard to achieve what we have. We both grew up poor and used ROTC to get through college followed by nearly 14 years in the army. We are now enjoying the fruits of our labor - well sorta. We're also putting our daughter through a private college. I find it ironic that we worked hard to pull ourselves out of the low-income life we came from so we could pay through the nose to provide a better life for our daughter. I know others can relate to this.

Anyway, back to the numbers. My husband and I haven't worked this hard to give up what we've worked for. We don't have a lavish life - far from it. We don't take 'real' vacations (although I hope that changes next year). We go to writer's conferences or motorcyle events - Todd's other passion. So, we'd want to have enough income to continue doing the things we enjoy doing.

We buy cars that we expect to last 10 to 15 years. I'm still driving my Honda Prelude that's 20 years old now. We'll probably have to replace it this next year as it's finally showing it's age.

But I won't go back to the days of struggling and wondering where my next meal was coming from. I won't go back to the time of having to forgo a doctor's visit because it would cost more money than I had.

My goal is to retire debt free and have enough retirement income to cover all our retirement expenses and not worry about how I will pay for increases in medical expenses, property taxes, gas -- you name it. Just watch the news today to hear how hard it is for people to cope financially, especially those on fixed incomes. Hell, just look around your neighborhood or your extended family - I'm sure you'll find at least one person who is a senior citizen (not sure I like that label) who is having to make a choice between essential items that need to be paid but where money is insufficient.

So, I run the numbers and I continue to write within the confines of my working life because I can't afford to quit my day job and maintain what I've achieved.

Thursday, May 3, 2007

One foot or word in front of the other

Writing and revising a novel is a lot like training for and running a race. Just as there are short stories there are short races (5k and 10k) and just as there are novellas there are in-between length races such as half-marathons. Then there are the novels of various lengths and difficulty just as there are marathons and marthons combined with other events to create duathlons and triathlons. Depending on what you want to write or which race you want to run your training and practice will vary.

One thing they all have in common is being able to persevere, to put one foot or one word in front of the other, especially when you don't think you have it in you.

I write and I run races. October 2006, just shy of my one-year anniversary from major surgery, I ran the Chicago Half-Marathon. I was very nervous about running the race but several people in my office had signed up and it was the 10-year anniversary of the race. I had run lots of 10k races when I was in the army and after we relocated to the Chicago area I ran mostly 5k races with a few sprint triathlons and duathlons thrown in over about a 10 year period. I'd only run a 13 mile distance in training many years ago. As I said it was one week shy of a year since major surgery. BUT I had turned 50 in 2006 and I desperately wanted to do something challenging to prove to myself that I wasn't old and half-dead. Still, I was not in the best of shape and I'm still struggling to get back to a level of fitness that will make me happy and feel good about myself.

I ran the Chicago Half-Marathon and didn't stop until 8 1/2 miles. I never like to stop running during a race for many reasons and this was the first time since I started running races that I did this. Still I ran 8 1/2 miles before stopping! To me that's a signficant accomplishment all things considered.

Then I had to finish the race. I always finish my races no matter how slow I run. It's important to me. It's also a challenge because I have severe, chronic asthma and I have to pace myself accordingly. Several people were taken away in ambulances that day so this is serious stuff. I finished the race. I wasn't the last on the list of finishing times but not far from it. BUT I finished the race!!! I met my goal of finishing the race alive.

It finally dawned on my that my writing endeavors were very similar to my running endeavors. It really is a matter of pacing yourself to accomplish a goal and a matter of putting one foot, or one word, in front of the other and reaching THE END.