With the business landscape changing, and traditional job roles no longer fitting into narrowly defined boxes, this is an important time to highlight what accountants do and what the role of being a trusted advisor means. While this article covers various accounting issues that impact authors, much of this content applies to those who work as independent contractors.
The expense of hiring a professional accountant is a real obstacle for many. This is especially true when many writers, in business for themselves, are making less than $1,000 a year. Low cost (or free) spreadsheet programs are often suitable for tracking sales, income, expenses, and inventory. Programs like QuickBooks have tools to manage business operations, receivables, payables, and balance books. There is also no shortage of tax return preparers or tax preparation software to help in completing tax returns. For many independent authors, these low cost options make up their financial infrastructure. However, there are multiple nuanced issues that these solutions may not identify or fully understand. One of these issues is estimated taxes, which only apply to taxpayers who owe more than $1,000 in tax. Understanding whether you need to calculate 90% of the tax due on your upcoming return or 100% up to 110% of tax payments based on the most recent tax return you filed can be daunting, especially when hiring an accountant may seem like a luxury. However, this is not true.
One challenge with accounting is finding the gaps within this multi-solution model and getting coverage. For instance, keeping track of inventory is only a start. When sales information may come only semi-annually or once a year, there may be money left on the table from not reviewing royalty reports. For instance, with non-digital book sales, there are reserve balances for book returns that go unreleased. When that reserve against returns is excessive, which means the reserve is beyond the terms listed in the contract, the author’s proceeds become restricted by that amount.
Additionally, keeping track of income comes with several challenges. At Prager Metis CPAs, we have a royalty department that performs royalty audits and will review licenses, foreign sales, and analyzes sales records to make sure our clients are fully compensated for their artistic creations. Not all authors need royalty accountants, but many royalty accountants pay for themselves with their services.
As for expenses, this is where tax accountants shine. Beyond quarterly tax estimates and advising clients about the deductibility of expenses – which a simple Google search will provide numerous IRS publications on – accountants are trusted advisors. For instance, when the IRS sends a notice about auditing your tax return, your accountant is the best person to respond. The IRS’s expectation is for taxpayers to be able to provide bookkeeping in line with how their business works. Record retention and carved out business and personal records are fairly common basis for an IRS audit. Unfortunately, the longer the audit goes and the worse the struggle is to provide support for deductions, the deeper auditors may dig into which deductions are legitimate. A good accountant will get you through setting up and starting your business, sticking with you until it’s time to be enjoying your retirement.
There are tools authors can use to help with their business management, including tax return software and programs for keeping invoices and receipts specifically for the business. While how accountants are portrayed in television and media has become what people think of when they hear “I’m an accountant,” the utility of an accounting professional has gotten lost. Accounting isn’t compliance or recordkeeping only; it’s about maintaining financial well-being and optimizing opportunities with people you trust to help make those kinds of decisions. And, when you include estate planning, since nothing can be certain except for death and taxes, there’s no substitute for a good accountant.