Separating Your Streams of Income
It's crucial to remember that writing, beyond being our passion, is also a business. With that in mind, I want to talk about managing your author business effectively: separating your book royalties and writing income from your personal finances.
Why Keep Funds Separate?
Mixing personal income with your writing earnings can create a tangled web that's difficult to unravel come tax time or when assessing the financial health of your writing business. Keeping these streams of income separate simplifies accounting, makes tax preparation more straightforward, and provides clear insights into the profitability of your writing endeavors.
Setting Up a Business Banking Account
The first step to financial clarity is setting up a separate business banking account for your author business. This allows all book income, including royalties, advances, and payments for services, to flow into one designated place. Likewise, all related expenses, from software subscriptions to marketing costs, should be paid from this account. Many of you will be pleased to know that setting up a new account can often be done online, with no need to put on pants, venture outside or engage in lengthy conversations. Your current bank may offer the convenience of opening a separate checking account with just a few clicks, allowing you to manage this aspect of your business from the comfort of your home, anytime.
The Benefits Are Clear
- Simplified Accounting: With a dedicated account, tracking income and expenses becomes significantly more manageable. You'll have a clear record of your business transactions, separate from your personal spending.
- Efficient Tax Preparation: Come tax season, you'll thank yourself for this organization. Having all business transactions in one place makes it easier to report income, claim deductions, and ensure compliance with tax regulations. It took me one day (maybe four hours) to complete everything necessary to file taxes this year.
- Professionalism: A separate business account not only helps you manage finances more effectively but also reinforces the professional aspect of your writing career. It's a declaration that you take your role as an author seriously.
Are You Tracking Your Expenses?
Beyond keeping income and expenses separate, it's vital to track these transactions meticulously. But let's save expense tracking and financial management for our next conversation. For now, if you haven't yet established a separate account for your writing business, let today be the day you set this cornerstone of financial organization.
Remember, managing the financial aspect of your writing career is as crucial as crafting compelling narratives. Your stories are your legacy, but the way you manage your writing business paves the road to sustained success and creative freedom.
I'll be back in a couple of weeks to talk more about how I track my expenses and manage my income. I'll give you a hint now; I use a method called Profit First.
Happy writing,
Ines