The Tax Man for Canadians, Part Two

Business Mary Pletsch Taxes No Comments

 

When you’re doing your taxes, you’ll need receipts for your expenses  for the previous calendar year (for example, in April 2014, I’ll be claiming expenses I incurred between January 2013 and December 2013).  The receipt for the computer I bought five years ago isn’t claimable, even though I used it this year to write stories.  I also can’t claim gifts, like my desk chair.

 

Saving your receipts is critical.  Without receipts, you have no proof of the expenditures you made.  Always assume you’re going to get audited; receipts are required to show that your claims are legitimate!  Here are some examples of expenses which you can claim on your taxes.  Some of them may surprise you…

 

–          If you write at home, you can claim a portion of your living space as a workspace.  Travelling through the house on your laptop doesn’t count!  This would be the portion of your living area where you have your desk and do most of your administration and writing.

 

–          You may be able to claim certain portions of bills for communication tools.  In my case, I use the Internet to submit stories, learn about calls for submissions, publicize my writing, and research for stories.  I’m not going to be able to claim a portion of my telephone expenses, because I do all my writing business via the internet.  If that changes in the future – if I have an editor or agent who regularly contacts me by telephone – then I may start claiming phone expenses as well.  This claim is based on a percentage – how much of the total use is used for business purposes – and an accountant can help you figure out this calculation.

 

–          Tools and equipment for writing, which may include a lap top or desktop computer, word processing software, desk, chair, and data backup.

 

–          When you buy a book, save the receipt – it counts as “research material,” since by reading, you’re learning the techniques of effective storytelling and staying current on what’s being published in your field.  But be judicious.  If you’re selling your work as a short story writer or novelist, you’ll have trouble justifying  the purchase of screenplays or graphic novels as “research materials”.

 

–          Courses, seminars and conventions to improve your craft and/or network with others in the writing field.  Marie advises she can claim travel to two conventions a year, and receives credit for approximately 50% of her expenditures.  This includes registration, travel costs, and hotel fees if applicable.  Note that these cons are for business purposes.  I’ll be claiming Ad Astra, where I met with an editor, and Can-Con, where I presented panels to promote my writing.  I won’t be claiming TFCon, which I attended for pleasure, not writing-related business.

 

–          And while you’re travelling, save your receipts from meals.  You will need to write on the receipt itself how the meal related to your business, ie, breakfast at a convention, lunch with an editor.  Don’t claim alcohol.  Incidentals, such as coffee or tea,  are questionable.  Also, keep in mind that if you’re part of a writer’s group that likes to get together over dinner to edit each other’s work, that will likely not count as a professional expense.  It’s the difference between a bunch of co-workers getting together, and a working lunch with a potential client.

 

Marie Bilodeau, who’s been claiming her writing income for the past five years, strongly recommends the services of an accountant, preferably an accountant who will represent you if you are audited.  This service is a bit more expensive but will be worth the peace of mind knowing that if your taxes must be justified, the person who did them will be responsible for performing the justification.  The figures to claim the correct percentages for small business income can be quite complex for someone unfamiliar with tax preparation.  If you’d like to save money, Marie recommends creating an Excel spreadsheet tracking your revenue (income) and expenses, with the receipts to justify your entries.  Having this information organized (rather than making the accountant do it) may entitle you to a discount.  Always speak to your accountant to clarify the fees and the services you will receive for that money.

 



 


Here are some more links that may be of help:


Mystery Writers Ink’s Tax Tips for (Canadian) Writers:  http://mysterywritersink.blogspot.ca/2011/01/tax-tips-for-writers.html?m=1


Canada Revenue Agency:  Visual Artists and Writers:  http://www.cra-arc.gc.ca/E/pub/tp/it504r2-consolid/it504r2-consolid-e.html

							
 
		
		

											
 
	
 
									
	

				

							

					The Tax Man for Canadians, Part One
				

						
  
Business Mary Pletsch Taxes The Writing Life No Comments
					
 

					

				
Today and tomorrow’s posts are in recognition that not all of the Fictorians are American, and neither are all of our readers.  These blog posts, written in conjunction with Marie Bilodeau, are from the point of view of two Canadians.  Marie’s been claiming her writing income on her taxes for 5 years, and I’ll be doing the same this year, for the first time.   If you’re not Canadian or American, we strongly recommend you look into tax laws in your country to determine whether it is worthwhile for you to claim your writing as a small business, how to go about doing so, what types of expenditures qualify as “business expenses”, and how to claim income from your writing career.


If you’re a writer selling your fiction, then congratulations – you’re a small business.  Operating as a small business entitles you to certain exemptions at tax time that might help you to save money.   However, the law also requires you to pay taxes on your income – something which may not be deducted automatically, particularly not if your publisher is in a different country than you.


If you’ve not yet made your first sale, or if your first sale is small, it’s too early to claim writing expenses on your tax forms.  You may view your writing as a business—in fact, it’s wise if you think about yourself that way and conduct yourself professionally—but until you begin making money, the government will class your writing as a “hobby” and you will not be considered eligible for tax credits.  However, you may still be able to claim certain writing or business related courses as adult learning, or skills upgrading, depending on a variety of living factors.  An accountant will be able to advise you whether your courses are claimable.


Saving money on taxes by claiming writing expenses is great!  Where’s the downside?  The downside is that you must report all the income you earn from writing and, if necessary, pay taxes on that income.  If you receive a paper cheque, save the income slip that comes with it.  If you’re paid via paypal, print out the email that indicates you’ve received a payment.  Make certain to report ALL the money you’ve made from selling your writing to publishers.  It’s better to report too much, than not enough.  Unlike with most jobs, where tax money is taken off before you ever receive your pay cheque, in these cases, you will receive the bulk amount and be expected to save enough of it to pay for the taxes come tax time.  Keep savings in reserve for April, and then, if your tax bill comes to less than you expected, you can spend or save the remainder.


As a rough guideline, don’t expect your savings to exceed your earnings.  That means, if you make $600 of writing income in a calendar year, but your receipts entitle you to $900, you’ll only qualify for $600.  It may still be worth claiming all the receipts, though, as you’ll be able to carry your losses forward.


However, if your business loses money (you spend more than you make) continually, red flags may be raised.  Businesses are expected, eventually, to make profit; an activity that always takes money might be better classified as a hobby.  If you don’t get a big contract right away, and are spending a few years selling a short story here and a novella there, Marie and a fellow writer recommend that every 3-5 years you consider reporting a profit to prove you are a viable business—if you’re a voracious book-buyer like me, that may simply mean not claiming the vast quantities of books you buy that year as “research materials.”


Come back tomorrow for Part 2:  Receipts , Working With an Accountant and Useful Links.

							
 
		
		

											
 
	
 
									
	

				

							

					Option and Right of Refusal Clauses in Book Contracts
				

						
  
Business Guest Posts Publishing The Writing Life 7 Comments
					
 

					

				
 A guest post by Scott Boone.


In Nancy DiMauro’s excellent post on reversion clauses from a week or so back, she mentioned the four critical clauses in your book contract: the granting clause, the payment clause, the indemnification clause and the reversion clause. This is the fifth critical clause with which you need to be extremely careful. Nancy knows all about option-type clauses, but she was nice enough not to steal the thunder from my post today.


Option-type clauses are the clauses in your publishing contract that refer not to the work being published, but to the work or works you create after the one being sold in that contract. Essentially, what rights does the publisher have in your next work or works? I’m going to talk about three main types: options, rights of first refusal, and rights of last refusal.


Publishers believe that they will not make any money off your first book. That is the received conventional wisdom. So in publishing you, they are investing in you as an author as much as or more than they are investing in that particular book. If they are going to take that risk and make that investment, they have a legitimate reason for wanting some sort of rights in the works you create after that first book. However, too often, these clauses put all the risk on the author without any risk on the publisher.


There is a question of how enforceable these types of clauses are in court. One that is unlimited in time and scope might stand a good chance of not being enforceable. The more limited in terms of time and scope, the more likely it is to be enforceable. However, you don’t want to put your eggs in that basket. None of them. If you end up in court fighting one of these, then in the big picture you’ve pretty much lost even if the court finds in your favor. Get it right on the front end during the contract negotiation.


So here are the three main types and how you need to think about with each one.


Options


Option clauses give the publisher the right to purchase a later work at already set terms. They do not give the publisher the right to look at them first and make the first offer; instead, the publisher just has the right to purchase your next work on already specified terms. You’ve already agreed to it by giving them an option.


In their worst (and perhaps too common) incarnation, they specify that the publisher has the right to buy your next work on the same terms as the first. This is bad for you for at least two reasons. First, it means you cannot get any better terms, including royalty rates and advances, in your next contract. Remember that with a true option clause, the publisher can exercise it without any need to negotiate with you on terms. Those are already set. Second, if the option clause states that they can purchase the next work on the same terms as the first, those same terms include the option clause. The option propagates forward with each book, with no escape for the author. This can be incredibly insidious, and if you dig deeply enough, you can find horror stories of new authors stuck in these sorts of traps.


Look, it is not uncommon for a new author to get a relatively bad contract as their first contract. But an option clause that locks in future terms means that every contract after that will be a bad contract. Avoid these at all costs.


To make it clear, let’s look at them from another angle. An option clause obligates you but not the publisher. Therefore, you bear all of the risk and the publisher bears none. Let’s say your first book bombs. The publisher is not obligated by an option clause to buy your second book. On the other hand, if your first book is a big success, the publisher can buy the second book without having to give better terms. That’s a risk you bear. So you bear that risk while the publisher bears none.


If a publisher wants to lock in the right to your next work or works at set terms, then make them buy them with a multi-book contract. That way both parties bear some risk and it’s not all on you the author.


So what do you do if the contract you’re offered has an option clause? First, get rid of it. Get them to switch it to a right of first refusal or get them to make it a multi-book contract (if you are happy with the terms). If you can’t get rid of it, then either walk away or try to get the terms for the second work that are much better than the first and make sure an option clause will not be included in the contract for second work.


Further, make sure the clause is more limited than simply “your next work” or “future work.” That would include short stories, books in different series or even in different genres. If you are going to sign one, make sure it is limited to a certain form (long vs. short) and to that genre (or even better that series).


Finally, as with any clause conditioned upon the publisher doing anything, make sure the publisher has an objectively defined timeframe in which to exercise the right before losing that right.


The final word on options: Be very wary. Don’t even think of signing a contract with one unless the terms are good, do not include another option, and improve with the next work.


Right of Last Refusal


The right of last refusal is a clause that gives the publisher the right to match any offer for your future work made by another publisher. It’s a bit deceptive in how bad these are for the author. On first glance, they might seem to be not as bad as a straight option clause, but once we dig into how they work, we’ll see how they can actually be worse.


The right to last refusal basically gives the publisher the right to match any other offer. That means they have the right to buy the book at terms that match the other publisher’s terms.


They don’t seem too bad until you start to think about what such clauses do to your ability to get another offer. Put yourself in the shoes of the editor at the other publishing house. In order to make an offer to buy a book, you have to put in a lot of work. You have to read and evaluate the book. Then you have to champion that book to several other constituencies in house. Are you going to want to invest in that book, both in terms of time and workplace capital, if the first publisher can snipe the book out from under you for the same terms? Not likely.


So, while it appears that a last refusal clause gives you the ability to improve the terms of the next contract by getting a better offer somewhere else, that’s not a very realistic option.


Additionally, because the original publisher does not have to make a yes or no decision as they do with an option clause, you might actually get worse terms in the second contract. An option clause at least locks terms in. If your ability to go anywhere else is blocked because no other editor wants to invest the time to make an offer on a book subject to a last refusal, the original publisher can actually offer you worse terms because they know you don’t have any other options.


The final word on rights of last refusal: Don’t.


Right of First Refusal


The right of first refusal gives the publisher the right to be the first publisher to see your next work and the right to make the first offer on it. Unlike the option clause, the publisher cannot unilaterally purchase your next work. You have to agree to their terms. That’s not a bad deal for you as an author provided the right is limited.


You want a good and prosperous relationship with your publisher that spans multiple books. One in which both of you do well. And if you are writing a series, you really don’t want to switch publishers mid-series.


While the presence of this clause should not cause you to reconsider the contract, you should seek to limit it in at least two ways.


First, you should limit what works it covers. It should specify novels and not short works, unless your publisher does in fact publish short works and on terms you would like. It should also be limited to that specific series, or if you can’t negotiate for limiting it to that series, it should be limited to books in that particular genre.


Second, you should limit how much time the publisher has to respond once you have submitted the new work to them. The traditional publishing process is incredibly slow as it is. You don’t want it slowed down even further.


The final word on first rights of refusal: Fine if properly limited.


The Takeaway


Work to limit a right of first refusal in scope to a particular series or genre and in the amount of time the publisher has to make the offer. Avoid options and rights of last refusal.


 


Guest Writer Bio: 

M. Scott Boone lives in Atlanta, Georgia, where he works as a law professor in order to support a clowder of cats. He writes about legal issues affecting writers at writerinlaw.com. When not writing or teaching, he is a self-proclaimed soccervangelist.





							
 
		
		

											
 
	
 
									
	

				

							

					I Swore I Would Never Go Into Business…
				

						
  
Business Colette Black Forming a Business Legal Issues Publishing No Comments
					
 

					

				
ebook cover 9…And then I became a writer.


When people talk about finances, business models, marketing, and spreadsheets, all I here is, “blah, blah, blah…” That’s how I’ve been most of my life. I can  discuss calculus with more energy than I can muster up for anything related to business.  I had to stop and recognize that becoming an author meant I was going into business. I had to make a shift in my way of thinking, especially regarding the works I would self-publish.


We’ve talked about the business side before, but I’m going to say it again, one of the best places to learn about that aspect of writing is Superstars Writing Seminars. Check it out. Beyond that, as I went through the process of putting together my short story anthology, The Black Side, I realized forming my own publishing company was probably a good idea.  Jace Sanders addressed this in his post, “My friend said to get an LLC”, but I’m not going to talk about reasons to form publishing companies or types of companies. Instead, let’s talk about some of the business decisions that might need to be considered in conjunction with forming a company.


Money:  Where does it come from and where does it go? Trees, right? I’m still wishing for one of those, but in the meantime, I had to decide if I needed a separate bank account for my business. Depending on the type of business you organize, it may be a necessity, but what if it’s not? After spending time talking with a bank manager, I realized I had a few options. There were multiple types of accounts to choose from and I’m glad I didn’t jump on the first one they suggested to me. I took the time to talk with them, fully understand the pros and cons for each one and the possible tax implications, and then I made an informed decision based on my current needs. In a few years, those needs might change, and that’s something to keep in mind, too.


But it didn’t end with the bank. After getting my account, checks, etc. , I still needed to get everything in place  on Amazon, Paypal and any other service related to my business. I’m still in the process of deciding whether to get the Flint app for payment services or the traditional Square. Maybe that can be a future discussion.


Thanks to Heidi Berthiaume and her excellent advice on how to run a Kickstarter, at least I had money with which to publish my first novel and to make the whole process possible. I can’t wait to get her upcoming book on the subject. Money doesn’t bring happiness, but it helps make a business.


Privacy: You know the part of the copyright page where it says the publishing company and then the ADDRESS? That’s not the only place where you might want to have contact information, but you might not want it to be your home address. This is where a PO Box can come in handy. The postal service offers small boxes for very reasonable fees that won’t cost you more than a night out to dinner. Not everyone takes this option, but I think it’s worth it. When I send out the rewards for my Kickstarter, that’s the return address my supporters will see, further allowing me to separate my personal life, from my business life.


Perception: I don’t think forming a publishing company really changes anyone’s perception of the self-published writer. For those of us familiar with traditional versus self-publishing, it doesn’t take much investigation to recognize whether a writer went through an outside publishing company or formed their own. But registering my company name with the state, the bank account, PO Box, getting an EIN, and all of the other things involved, changed my self-perception, reminding me that I must treat this venture for what it is, a business. I must market, I must work, and I must be professional in order to make it profitable. I also developed a business logo that has personal meaning. Each time I put that on the cover of a book, I’m reminded again, that I’m not only an author, I’m a businesswoman.


So, as you contemplate whether or not to take self-publishing to the level of forming your own publishing company, I hope this gives you some information to consider in your pros and cons.


*As has been stated in previous posts, by other blog contributors, this is not legal advice.