How do taxes work in the publishing world? By trade, I’m a booth-renting hair stylist, and I set a portion, (about 30%) of my income and set it aside for taxes. I talked to a tax person not too long ago, and she wasn’t versed in tax laws for writers, but she did say she thought that the tax laws were different than a “regular” business.
you mean like a business that makes money?
As a writer you are the owner of a small business. Welcome to the world of Schedule C. You keep track of your expenses and income. You read the instruction book carefully. You DO NOT CHEAT. By this I mean when you go to Miss Congenialty's Strip Club and Novel Writing Seminar, you only claim the novel writing seminar part as a deductible expense.
When you get a big fat advance, Miss Snark sends you a check. At the close of the fiscal year (cause she's organized in a linear fashion it is 12/31) Miss Snark sends you and the IRS a form detailing how much you've gotten.
What your tax person may be referring to is when expenses are accrued. I am NOT NOT NOT an expert on this. If you have enough money to matter (ie you're making more than pocket change from your writing) I advise you to seek advice from an accountant who knows publishing law. Do this NOW not April.
My business runs on what is called a cash basis. I spend money and make money and at the end of the year I account for all of it. Some writers accrue expenses..that is list them before they occur or hold them over to a year when they will actually earn income. This is legal if it's done right. Get advice.
She also may be referring to the fact that you actually have to earn money at some point for your writing to be a business. You can't keep expensing things without showing income. I think three years is the limit but again...GET ADVICE.