Congratulations, you got your first book deal! Now you’re probably wondering, “What royalties will I…
For illustrators, taxes work a bit differently than from those working regular 9–5 jobs. You’re essentially your own small business owner and need to treat your taxes as such. Let’s take a look at some essential things illustrators should know about taxes.
Your tax debt will be much higher than a regular job
Where a “day job” would take out taxes before you get paid, illustrators receive the full pre-taxed payment for each assignment from their clients. Therefore, you’ll have to be accountable for all those taxes when it comes time to file in April. Additionally, you’ll also need to pay a self-employment tax. A safe estimate is to assume that 1/3rd of the money you make throughout the year will need to go to taxes. Save it. You’ll need it.
File estimated quarterlies
If you want to avoid having to pay a whopping sum every April (as well as penalties), you’ll have to file and pay estimated quarterly taxes. Estimated quarterly taxes are estimates based on last year’s earnings of what you expect to be earning this year, broken down into four installments. Sometimes you’ll underpay and owe more in April, sometimes you’ll overpay and get a refund. In either case, estimated quarterly taxes are necessary so that you don’t get hit with a huge, unexpected bill you can’t pay.
If you’re an employee of a company, you get a W–2 tax form. As an illustrator, though, you’re a freelancer and thus will receive a 1099-MISC. In fact, you will get a lot of them. Technically, any company that paid you more than $600 should send you one. You’ll need to check each 1099-MISC to make sure the client has reported the correct amount. Sometimes they screw up. That’s a problem because if they’re telling the government they paid you $60,000 and they only actually paid you $6,000, you can bet there will be an audit in your future. Sometimes clients won’t even send you a 1099-MISC. If they haven’t, you still need to report the income because they may have reported it to the government without letting you know.
One nice thing about illustration are the write-offs. You can write off anything related to your business expenses for the most part, including supplies, postage, and internet. You can even write off things like books and movies you had to read or watch as research. If you have a separate studio, you can write off all the costs associated with it. If you work from your home in a dedicated area, you can write off the percentage of it that you pay in rent. You’ll need receipts for all of these things and will need to itemize everything on your tax return, but that’s a small amount of effort. And it can be made even easier by doing the following:
Get a business checking/savings/credit card account
It can be hard to keep track of all your expenses throughout the year. To simplify things, you should have your own business accounts for banking. That way, when tax time comes around, it’s all in one place. Virtually every business expense I make is either paid by a business credit card or checking account. I can’t tell you how easy that makes things.
Use an accountant
Finally, I can’t stress this enough—have a professional do your tax return. There is no substitute for a good accountant and they’ll know all the different laws to help you save the most money. And here’s an added bonus—you can actually write off their expenses on next year’s return!