Freelance writers and authors—even those earning well into the six figures—can look forward to a US tax break for 2018
The Tax Cuts and Jobs Act (TCJA), signed into law late last year, affects federal income tax for all citizens, but it has particular provisions affecting writers’ taxes starting in 2018. The Authors Guild offered a helpful summary of the changes in 2017, and now the Treasury has released proposed regulations to clarify the tax cut.
Be warned that these regulations are not light reading, and we are not tax professionals—and probably neither are you—so we urge you to ask your accountant for guidance; each individual’s situation will be different. That said, we reached out to two accountants who specialize in tax assistance for writers—Carol Topp and Jonathan Medows at CPA for Freelancers—and would like to draw a couple of points to your attention.
- If you are a sole proprietor or owner of a pass-through entity, you qualify for the new 20 percent tax deduction. Often used by authors and freelancers, sole proprietorships, partnerships, LLCs, and S corporations can take advantage of a new tax deduction that allows such businesses to deduct 20 percent of their profit from their taxable income, assuming that total taxable income is less than $315,000 for married joint filers or $157,500 for single filers.
- The 20 percent deduction gets phased out and/or may not apply at higher income levels, depending on how the IRS defines the business you run. A single person earning beyond $157,500 per year ($315,000 if married) gets treated differently—and fairly complex calculations are involved. Some technical explanations and tables can be found here.
If you are lucky enough to be earning at that higher level ($157,500/$315,000), how can you tell whether you are excluded from the deduction? The IRS will not allow specified service businesses to take the deduction at higher income levels; these are defined as “Any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.”
When Michael Cader of Publishers Lunch (subscription required) reviewed the new regulations, he concluded, “By early interpretations, high-earning authors would qualify for the near 20 percent deduction of qualified business income, and it appears as if literary agents would be eligible as well.” (Emphasis ours.) The New York Times concluded, “[The exclusion] does not appear to apply to writers.” Topp told us she assumes “the IRS considers writers and artists as producing a product (a book, an article, a piece of art, etc.), but not offering a service.”
Bottom line: Let’s underline the key takeaway: if you’re a writer who earns less than $157,500 as a single filer, you likely qualify for the 20 percent deduction and don’t need to do anything special to claim it. The more complicated discussion affects high earners as well as those who run an LLC set up as an S corp and pay themselves a wage. But there are many variables, as Medows emphasized to us. For example, a high-earning spouse will affect your situation, as will state and local taxes for the type of business entity you are. As more guidance is offered either by the government or writers’ organizations, we will share it with you.
Jane Friedman has spent her entire career working in the publishing industry, with a focus on business reporting and author education. Established in 2015, her newsletter The Bottom Line provides nuanced market intelligence to thousands of authors and industry professionals; in 2023, she was named Publishing Commentator of the Year by Digital Book World.
Jane’s expertise regularly features in major media outlets such as The New York Times, The Atlantic, NPR, The Today Show, Wired, The Guardian, Fox News, and BBC. Her book, The Business of Being a Writer, Second Edition (The University of Chicago Press), is used as a classroom text by many writing and publishing degree programs. She reaches thousands through speaking engagements and workshops at diverse venues worldwide, including NYU’s Advanced Publishing Institute, Frankfurt Book Fair, and numerous MFA programs.
