How to Get Paid
Finance 101 for writers.
IMAGINE you finally sell that first book. For years you’ve been piecing together low-paying teaching gigs or toiling away at a dull office job, and then— miracle of miracles—an editor at a major New York house offers you a six-figure deal to publish your book. A short time later a cable network comes along and offers you even more money for the right to adapt it as a TV show.
Easy street, right? You can quit the day job and settle in for a long and productive life as a full-time writer.
Not so fast. For starters, your agent will take 15 percent off the top of your book-related income. Then there are taxes. Advance payments and royalties are freelance income, and if you aren’t regularly setting aside large portions of your earnings for taxes, you can run into serious trouble with the IRS. And what about health insurance? And what if, God forbid, the TV show doesn’t get made and your next book doesn’t sell? Are you prepared for that, or will an artistic setback send you right back to where you were before you sold that first book?
Writers tend to avoid seeking financial and tax advice until after they hit a crisis or receive a windfall, by which time it can be too late, say finance professionals who work with artists. “The best time to learn about this stuff is before you’re sitting on a gigantic pile of cash, because when you’re sitting on a gigantic pile of cash, that’s when the vultures come out,” says Arwen Lowbridge, a financial planner and adviser with Baystate Financial in Pittsfield, Massachusetts. “That’s when you get bad advice.”
Those vultures, so far at least, haven’t had much luck with writer Carmen Maria Machado, who saw her income more than quintuple after she published her first book and landed a dream teaching job.
In January 2017, after years of eking out a living from adjunct teaching, freelance writing, and working in retail, Machado started a prestigious writer-in-residence gig at the University of Pennsylvania. Later that year her debut story collection, Her Body and Other Parties, was published by Graywolf Press, winning rave reviews and a slew of awards, which drove book sales and drew the interest of the FX network, which hopes to adapt the book for TV.
A steady teaching gig and a hit book turned Machado’s
financial life upside down—in a good way. Before she started at Penn, Machado was making about $20,000 a year, forcing her to rely financially on her girlfriend (now wife), Val Howlett, who had a more traditional job with benefits. In 2018, thanks to her book and TV sales and her teaching salary, Machado’s income was more than $100,000.
Fortunately for Machado she already had a working relationship with Amy Smith, a tax specialist who works with writers and other artists. In addition to helping Machado and Howlett with their taxes, Smith counseled the couple on how to approach saving for retirement, and when they decided to buy a house earlier this year, Smith put them in touch with mortgage professionals who wouldn’t blanch at Machado’s unpredictable earnings.
“She connected us with the person who did our mortgage, someone who works with artists and people who have unconventional income streams,” says Machado. “That was something we were looking for. Sometimes when artists try to buy houses, the mortgage folks look at their income and they’re like, ‘What is this? I don’t understand.’”
Writers like Machado who rely on freelance earnings for a significant chunk of their annual income face two principal problems: managing their working lives so they make enough to live on, and managing the freelance income they do earn to minimize their tax burden and maximize their financial stability.
Before they can tackle the first of these two problems, writers first must figure out how much money they need to live on. Smith offers her clients a simple worksheet, reproduced on page 79, that asks writers to calculate their monthly expenses on everything from rent and utilities to student loan debt and estimated tax payments. Those monthly figures, when added up and multiplied by twelve, offer a rough estimate of the writer’s annual cost of living.
To calculate how much writers need to charge for their work to live comfortably, Smith suggests they divide their annual budget by fifteen hundred to arrive at a reasonable hourly rate. (People working a standard forty-hour week for fifty weeks work two thousand hours a year, but artistic work tends to be gig-based, with many hours spent pitching and preparing, so Smith recommends assuming a fifteenhundred-hour work year.)
Such calculations are by their nature rough estimates, but writers can use them as guidelines when pitching for work, Smith says. If, for instance, you decide you need to make $45,000 a year, you would need to average $30 an hour for your work. If you’re offered work that pays significantly less, Smith says, you may want to negotiate a better rate, understanding that you ultimately may have to turn down a job if it doesn’t pay enough.
“Just say yes to no,” she says. “It’s really hard because we internalize all these messages that our time is not valuable, but once you start saying no to opportunities, a magical thing happens, which is that people change their understanding of what your time is worth and start offering you more.”
Of course that hourly rate is an average, meaning that once writers know their annual budget, they can compensate for a certain amount of poorly paid work by taking on other, better-paying jobs. To help clients sort out this complex mix, Elaine Grogan Luttrull, a certified public accountant who works with artists and other creative individuals, offers a performing-arts metaphor.
First, Luttrull says, there is the work that takes on the “starring role,” the writer’s core artistic pursuit, such as writing fiction or poetry. A lucky few can make a living on this work alone, but most writers subsidize their artistic practice with more lucrative jobs. In Luttrull’s analogy this supplemental work falls into two categories: “supporting cast work,” which are jobs such as copywriting or teaching that are related to one’s art but pay better; and “production assistance work,” which are jobs that have nothing whatever to do with one’s art but can be relied upon to pay the bills.
“Some people want all starring-role and supporting-cast-role work, and that’s awesome,” Luttrull says. “But I’ve worked with writers who say whenever they’re writing something that they don’t want to be writing, they’re too tired to write what they want to write, so for them, the ideal mix is starring role and production assistance work. You want a job where you don’t have to tax the writing part of your brain so you can save that for your writing.”
The key, Luttrull says, is to choose the mix that works best for you, rather than have your choices made for you by circumstance or lack of foresight.
The same goes for reducing expenditures to free up more time for artistic pursuits. Pop financial advice often focuses on dialing back luxuries like vacations or daily lattes, but most working writers already live fairly frugal lives. Many writers can choose where they live, though. Some younger writers gravitate toward New York City, the nation’s publishing and cultural hub, but New York is among the world’s most expensive cities, and too often young writers sacrifice valuable writing time just to pay their rent.
“Make your choices on purpose,” Luttrull advises. “Why are you living in Brooklyn? Why are you living in L.A.? If your side hustle is writing for film and television and you have to be there during pilot season, you probably don’t have a choice. If you have a family obligation that’s going to keep you in a particular area and the only sort of creative place nearby is a very expensive city, you might not have a choice. But if you do have options, how willing are you to explore those options?”
Younger writers can also gain a measure of control over their finances by deciding in advance how much debt, if any, they’re willing to take on to finish an MFA degree. An MFA can be a valuable credential if it leads to a full-time teaching job, but those jobs are increasingly scarce, and writers should have a clear idea before they enter an MFA program what their monthly loan payments will be once they’re finished and have a plan for how they’re going to afford them, says Lowbridge, the Baystate financial planner. “Taking on that much debt without a viable strategy to pay it off aggressively can create financial catastrophe in the long run,” she says.
The Federal Student Aid website (studentaid.ed.gov) offers a repayment estimator that allows students to calculate their future monthly loan payments, along with information on programs that, in certain cases, can reduce or eliminate debt. Students who don’t qualify for those programs, and aren’t offered funding from their university, might ask family members to pick up some of the cost, or if that’s not a possibility, delay applying for a few years to build up savings, Lowbridge says.
Cost-cutting isn’t all a matter of sacrifice and self-denial, though. Taxes and insurance are huge costs for freelancers, and with some careful planning
and a heightened awareness of the rules, writers can save a lot of money.
The Affordable Care Act has relieved some of the pressure on freelancers needing health insurance, but the cost of coverage remains out of reach for many. Writers who don’t have adequate health insurance through work or government programs can explore health plans through organizations like the National Writers Union (nwu.org) and the Freelancers Union (freelancersunion.org).
As maddening as the search for quality health insurance can be, filing tax returns as a freelancer is in some ways even worse. Unlike a traditional employee who receives a single paycheck with deductions for taxes and benefits already taken out, freelancers are often paid in lump sums and are responsible for paying their own taxes and insurance.
If a freelance payment is large—a book advance, say, or a lucrative writing award—financial experts advocate spreading it out over more than one tax year, if possible, to avoid jumping a tax bracket, and setting aside between 15 and 30 percent for taxes. In many cases, freelancers have to pay taxes in quarterly installments to avoid penalties.
Even then, some writers can get a nasty shock at tax time. Machado, who had been faithfully filing her quarterly estimated tax payments last year, nevertheless found she owed various taxing authorities about $20,000 this spring. “I just had to rustle up some cash,” she says. “It’s no joke.”
Still, writers who are savvy about the tax code and willing to put in the time to collect receipts and itemize business deductions can reap large tax savings. In the eyes of the IRS, your freelance work is a business for which you can deduct reasonable expenses so long as you consistently make money at it and treat it as a business. Even if your work doesn’t meet the IRS definition of a business, you can deduct certain expenses related to your writing up to the amount you earned from it in a given year.
Smith, the freelance tax preparer, who is based in Philadelphia, offers clients a worksheet, reproduced on page 80, listing the most common of these so-called Schedule C deductions, which range from expenditures on books and research trips to business gifts like sending flowers to your literary agent after signing a book deal. “If it’s ordinary in your line of work and it’s necessary in your line of work, you can deduct it,” she says.
One major expense freelance writers can deduct is office space. If you rent an office or pay for a shared work space, you can deduct those payments. If you write at home, you can deduct a portion of your rent or mortgage based on how many square feet you’re using exclusively for your home office. “It’s absolutely ordinary and absolutely necessary to have a space to write, so just look at your space,” Smith says. “If it’s a hundred square feet and you live in a six-hundred-square-foot apartment, one-sixth of your rent and one-sixth of your utilities is now deductible.”
Writers who consistently earn a sizable income from their work—more than about $75,000 a year—may want to consider incorporating as a business entity, such as an S corporation, which allows writers to pay themselves a salary and save more money at tax time.
Novelist and screenwriter Teddy Wayne, the author of four novels, including Apartment, due out from Bloomsbury in February, formed an S corporation in 2017. Under the new arrangement, filing taxes is marginally more expensive, he says, and meeting the reporting requirements of a corporation can be time-consuming, but the savings are much greater.
For a writer like Wayne, who supports himself almost entirely on sales of his books and screenwriting work, taking the time to itemize deductions and hire accountants to help at tax time is a no-brainer. If anything, Wayne says he wishes he’d hired a professional accountant earlier. “I think I wasn’t deducting some things that I could have been deducting, and a professional would be aware of these things and clued me in to it,” he says.
Of course good financial advice doesn’t come cheap. Luttrull charges clients $110 per hourlong session through her firm, Minerva Financial Arts, in Columbus, Ohio. Smith, the independent tax specialist, charges $275 for a single filer and $400 for a couple filing jointly, but depending on who you work with and the complexity of your finances, your tax prep bill can easily run much higher.
If you do seek a financial or tax adviser, experts say, try to find one who has experience working with artists, either by searching online or by asking mentors and successful writer friends who they trust with their own taxes and financial planning. “If you’re going to go to H&R Block as a writer, they’re probably not going to know what you can deduct, or they’re going to do it incorrectly,” says Smith. “So if you can find someone who’s in the community already, who is themselves an artist or at least familiar with artists’ taxes, that’s the best.”
But Smith, who taught herself nonprofit accounting by keeping the books for a dance company she helped create, says that, with enough work, anyone can manage their own finances. “I’m a big fan of people learning how to do it themselves because it saves money and you feel more empowered, you feel more in control of your financial destiny,” she says. “And, frankly, irs.gov is a really good website. People are afraid of the IRS, but you can go in there and type just about any question or key word and find what you need.”
Editor’s Note: Arwen Lowbridge offers investment advisory services through MML Investors Services, LLC. Member SIPC. www.SIPC.org. 200 Clarendon Street, 19th & 25th Floors. Boston, MA 02116. 617-585-4500. CRN202109253422.