by Moira Allen

Wouldn’t it be great to quit the rat race? To leave bosses and timeclocks behind, skip the commute, ditch the heels or tie, and work in the same clothes you wear to weed the garden?

It’s called “taking the plunge,” and if you’re at all serious about writing, you’ve probably dreamed about it. But you may also have regarded that dream as, at best, nothing more than an improbable fantasy. Writing may be the career you love, but chances are it’s not the career that’s keeping food on the table and a roof over your head.

I can’t tell you whether you can make that dream a reality. But I can offer a few tips on making the decision: To plunge or not to plunge!

When to Plunge—and When to Stay Safely Ashore

The first question to ask when considering “the plunge” is: Where is your writing career today?

If the answer is “just getting started,” stop right there. If you have only a few clips to your resume, or no clips at all, you’re unlikely to be able to support yourself at your craft.

I hear from many writers who say they would like to quit their jobs and “start writing.” To such writers, I say: “Start writing now. Quit later.” If you haven’t started yet—or if you’re just starting—you simply won’t know enough about this complex business to earn a living. So start writing. Get your feet wet. Find out what you can and can’t do, what you enjoy, what you don’t enjoy. Discover your strengths, and the areas that could use improvement. Find out whether you really wish to pursue writing as a business, or whether you’d rather pursue it as an avocation.

Writing can be a career or hobby or anything you care to make it. Writing for a living is a business, pure and simple. If you wouldn’t dream of quitting your day job to run, say, an auto repair shop without any training as a mechanic, then don’t dream of quitting your day job to become a writer without a comparable level of experience.

But how much experience IS enough? Should one have been writing for a year, or three, or five? Can writing experience even be measured in terms of “years”?

I suspect it can’t. The real question is “where you are,” not how long it has taken you to get there. The following checklist may help you determine whether you may be ready to consider “plunging”.

A Writer’s Checklist

* I write more than 5 hours per week, every week.
You have discipline. It’s tough to find five hours a week for writing when working a day job. You’ve already passed one of the biggest hurdles writers face.
* I submit at least one new query or article per week.
You have a high output. Clearly you don’t spend those five hours a week (or whatever) repolishing old material, or stuffing your work in a drawer. You’re already “in the marketplace.”
* More than 50% of my queries and/or articles are accepted.
You know how to target markets effectively, and you obviously write well enough to impress the majority of the editors to whom you submit. (With that kind of acceptance rate, there’s a good chance that your rejections aren’t due to poor quality.)
* More than 50% of my markets pay more than $100 per article.
You’ve found the guts to break out of the low-paying “ghetto”. You have confidence that your work is worth more. You won’t be held back by self-esteem issues.
* I have at least one “regular” market that has accepted several of my articles.
You have a steady source of income.
* I have at least one “regular” market that contacts me with assignments.
You must be reliable and dependable. You meet deadlines and produce quality work. Otherwise, editors wouldn’t come to you with ideas.
* I am familiar with the practices and terminology of the publishing marketplace (e.g., I know what “FNASR” and “SASE” mean and I know how to format a manuscript).
You know the basics, and won’t have to waste precious time “gearing up.”
* I own at least one current market guide.
You know the importance of obtaining the tools of the trade.
* I subscribe to two or more writing publications.
You keep current with your field.
* I know how to cope with rejection.
You won’t be daunted by the inevitable disappointments of this type of career.
* I earned more than $5000 from writing activities last year.
It won’t keep a roof over your head, but it’s more than many freelancers ever make in a year. It’s one of those invisible lines: If you know how to earn this much, you know how to earn more. Probably the only thing holding you back is lack of time.
* I currently report writing income for tax purposes, and know how to maintain proper business/tax records of income and expenses.
You know that “writing” isn’t just putting words on a page. It’s also a matter of records, accounting and good business practices.
* I keep a household budget.
You already have an idea of what it will take to support your household—which means you know how close you are to being able to go full-time.

While scoring 100% on this checklist is no guarantee that you’re ready to quit your day job, a low score is a pretty good indication that you need to build up more of a foundation for your writing career before attempting to rely on it for a paycheck.

Making a Plan

So you’ve scored a perfect 13, you’re totally fed up with your day job, and you’re sure this is what you want to do. What next?

For most writers, the answer is not “quit your day job today.” The answer is “make a plan.” Typically, if you hope to become a full-time writer, you’ll need to plan at least six months to a year ahead before actually “taking the plunge.”

What will you do during that year? Lots! Here are some of the steps you’ll need to take before saying farewell to a regular paycheck and “hello” to the joys and uncertainties of the freelance life.

1) Discuss your desire to become a fulltime freelancer with everyone in your personal life who will be affected by that decision (e.g., spouse, significant other, children). Presumably, your desire to write won’t be a total surprise. However, family members who supported your “hobby” may not be as enthusiastic about losing a significant chunk of family income. They may not be happy about making adjustments, such as providing extra income themselves or accepting cutbacks and lifestyle changes. Don’t be surprised if you encounter resistance or even sabotage. (I’ve heard of some wacky “conditions” imposed by spouses.) Don’t dismiss those concerns as unfeeling; if your decision will affect others, the needs of those others should be a part of the decision-making process.

2) Evaluate your household income requirements. If you don’t track your monthly expenses, this is a good time to start. Before you can make an effective plan, you need to know exactly where every penny of your income goes. Try tracking expenses on a simple spreadsheet, with categories such as:

* Rent/mortgage
* Groceries
* Utilities
* Insurance
* Auto (gas and repairs)
* Medical
* Household expenses (e.g., maintenance)
* Clothes
* Children’s expenses
* Meals and Entertainment (e.g., restaurants and movies)
* Miscellaneous

It’s also wise to break “miscellaneous” into more detailed categories, such as “books, CDs, videos, pets, crafts, subscriptions,” etc. A good rule of thumb is to establish a separate listing for every category that exceeds $50 (or even $20) per month.

If you’re never tracked your expenses in such detail before, you could be in for a shock. You didn’t know you spent $100 a month on books? Or that those twelve magazine subscriptions (that you never have time to read) cost more than $500 per year? Your budget may be a rude awakening, but it can also be a welcome one, as certain categories emerge as ripe for cost-cutting.

3) Create a projected budget. It’s “trim the fat” time. Go over your current expense list, and determine what you can cut and what you can’t. Be realistic: Don’t imagine that you can go a year without buying a new CD or book, or without eating out even once. (By resolving to buy those CDs or books used instead of new, however, you can immediately cut those categories in half!) Be sure to budget for unexpected expenses; you can bet that sometime in the next year, the car will need repairs, the dog will get sick, or the roof will leak.

4) Determine the difference between your projected budget and your current take-home income. If, for example, you can trim $10,000 in expenses, and you take home $30,000, you’ll need to earn $20,000—one way or another.

5) SAVE. Most writers suggest having a full year of income saved (or at least enough to cover a full year of expenses). You need a cushion to pay those regular bills while waiting for irregular checks. Savings will be easier once you trim the budget, however. For example, if you’ve determined that you can cut $10,000 in expenses, you can save that over the next year. You can also ramp up your writing (by producing more articles or seeking higher-paying markets), and bank every penny of that income as well. If your shortfall is $20,000, and you save $10,000 in expenses and earn another $10,000 in writing over the next year, you’ll have covered the difference.

6) Create a business plan. Determine your existing income sources, and explore ways to increase that income. Should you pitch more articles to your regular customers? Should you seek new, higher-paying markets? Should you focus on a specialty or expand your range?

7) Be realistic. Nothing will sabotage your dream faster than setting impossible or unsatisfying goals. One writer I know attempted to increase her regular workload AND double or triple her writing output. Needless to say, this didn’t work, and her “plunge” has been postponed indefinitely. Another common cause of failure is “plunging without a net”—with no savings backup. It only takes one missed rent check to get you back behind that hated office desk.

Your goal is to improve your life, not ruin it. Many writers take the plunge so that they can spend more time with loved ones—so don’t create a schedule that shuts those loved ones out of your life! Many also want to find more time to do what they love—so don’t create a plan that forces you to give up the types of writing you love in favor of higher-paying projects that bore you to tears. In short, don’t sabotage your plan—or your life—in your attempt to make that life better.

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Copyright © Moira Allen

by Moira Allen

Help! I’ve earned more money than I anticipated this year from freelance writing, and haven’t paid any estimated taxes on this money. Is it too late to pay estimated taxes, and will I be penalized for not doing so? What can I do?

The writer of this letter might seem in an enviable position: Would that we all had such problems! The threat of tax penalties, however, is enough to alarm anyone.

Fortunately, this writer needn’t become alarmed just yet. There is still time for her—and you—to make plans to reduce the tax liability of an unexpected “windfall” profit. The catch is that you need to start making those plans now, well before the end of the tax year.

Taxes and the Working Writer

Working writers (i.e., those who actively earn money from freelance activities) generally fall into one of three categories:

1. Writers for whom freelancing is a full-time profession and sole source of income
2. Writers who freelance part-time, but also hold a full- or part-time “day job”
3. Writers who freelance full- or part-time, but who also have a working spouse with a full-time “day job.” (Writers in this category may also fall into Category 2.)

If you are in the first category, you may already be paying estimated taxes, and may therefore be familiar with the system. In addition, you have probably developed fairly accurate methods of “estimating” your future income, so that a sudden surge won’t catch you completely by surprise.

If you fall into the second or third categories, however, you may have relied upon the tax deductions from your (or your spouse’s) “regular” paycheck to cover your liability. So what happens when you unexpectedly receive more writing income than usual?

The immediate answer is “nothing.” If you were not liable for additional taxes (over and above your payroll deduction) last year, you will not be liable for estimated taxes this year, even if you receive an unexpectedly large amount of income sometime during the year. However, if that sudden windfall increases your tax liability this year, you may be required to pay estimated taxes next year.

Fortunately, you can take steps to minimize your potential tax liability. If you already have a good idea of how much writing income you’re likely to receive by the end of this year, this is a good time to start calculating exactly what your total liability will be, whether your payroll deductions will cover that liability, and whether you can find a way to reduce your tax debt.

Ladies and Gentlemen, Start Your Spreadsheets…

The process begins by looking at last year’s tax return for answers to the following questions:

* Did you receive a refund? How much? Would that refund disappear if you’d received extra income, or been bumped into a higher tax bracket?
* What is your current tax bracket? What leeway do you have between your current bracket and the next highest bracket? (I.e., how much income can you earn before being “bumped up”?)

If you don’t know your current tax bracket, you can find out by looking at last year’s tax bulletin (the instruction book for Form 1040), or by visiting the IRS website at http://www.irs.ustreas.gov/index.html. (Search “forms and publications” for “tax tables”.) Keep in mind that your bracket (percentage) is based on your total taxable income (including writing income), after you’ve taken all possible deductions (including writing expenses and itemized deductions). Note, also, that your payroll taxes may not reflect your actual tax bracket, as they do not account for either your extra income OR your various deductions. This extra income may often be taxed at a higher rate, if it bumps your total income above the “cut-off” point for the next highest tax bracket. For example, if you are “married filing jointly,” and your total annual income is somewhere between $42,350 and $102,300, the first $42,350 is taxed at 15%, while anything above that is taxed at 28%. [Author's Note: This article was written in 1999; these are 1999 figures.] Thus, if your writing income has raised the total above the cut-off point, keep in mind that this income will be taxed at the higher rate, even when your wages may be taxed at the lower rate. (One goal, therefore, may be to reduce the contribution made by your writing income to a point that it no longer puts you in a higher tax bracket.)

Now, you’ll want to calculate your tax liability for this year. The easiest way to do this is to create a simple spreadsheet based on last year’s return. You can even start by inserting last year’s numbers (to make sure all your calculations are correct); then replace them with this year’s figures. Such a spreadsheet (based on an assumption of a couple “married filing jointly” with no children) might look something like this:

Even if you don’t know this year’s tax rates (the table above is based on calculations for 1998), you will still emerge with a good idea of whether you’re likely to owe extra taxes. Note that your writing income also increases your self-employment tax. In this example, your tax liability would make it extremely likely that you would be required to pay estimated taxes next year.

To calculate your business profit and loss, you’ll need another spreadsheet that reflects the income and expenses you’re likely to claim on your Schedule C. “Guesstimate” your business expenses through the end of the year by dividing your current total by 9, then multiplying the resulting figure by 12. For example, if you’ve spent $500 on office supplies to date, your average monthly expense in this category is $55.55, which means that your annual expense will probably be around $833. [($500/9) x 12 = $833] Your business profit/loss spreadsheet might look like this:

Now that you have the basic details about your income and deductions, you can use these spreadsheets to evaluate various options that may reduce your tax liability.

Spending Money to Save Money

As a self-employed writer, you have several options for reducing the tax liability that might result from a sudden windfall profit. Most of these, ironically, involve spending money. The key is to spend it wisely, giving you an advantage now PLUS the advantage of avoiding estimated taxes next year. Here are some options to consider:

* Make sure you are taking every possible business deduction. If you qualify for the home office deduction, but have been nervous about taking it, take it now. (Remember that you can’t use this deduction to create a loss, but you can use it to bring your profit to zero.)
* Increase your business expenses. Stock up on pencils and paper. Buy toner cartridges for your printer. Print new business cards. Subscribe to a professional journal.
* Buy equipment. If you’ve been yearning for a new computer or laptop, this may be the perfect way to spend your “windfall.” New equipment does not have to be depreciated; within certain limits, it can be expensed directly from your income (i.e., deducted like any other business expense.) This requires some extra forms, but is well worth the hassle. Keep in mind, too, that you can use a credit card to buy this equipment at the very end of 1999, and pay off the cost next year.
* Increase your payroll withholding. Talk to your payroll department and find out whether you can increase the amount of taxes being withheld from your (or your spouse’s) paycheck. Usually this is done by reducing the number of withholding allowances on your W-4. In some cases, you may also be able to specify a certain percentage to be withheld. While this reduces your take-home income, it can also preclude you from having to “save out” taxes for the quarterly estimated payments next year.
* Donate to charity. Charitable donations can be deducted from your income. Make sure your favorite cause is a legal tax deduction, and that you don’t receive “goods or services” (e.g., “free gifts” such as PBS videos or t-shirts) in exchange for your donation.
* Postpone income. If you’ve already received a windfall and know that you have still more writing income coming before the end of the year, ask your publishers/editors to hold off payment until next year. Many publications will be happy to oblige. You’ll only be taxed on the amounts you actually receive, not on amounts that are due but not yet paid. This will give you more time to balance your liability next year.
* Set up an IRA. It is now possible, in some cases, for a self-employed person to establish a tax-deferred IRA or 401K plan even if your spouse already has such a plan at work. Check with an accountant to find out whether you can shelter any of your writing income through an IRA, Roth IRA, or 401K.

Use the spreadsheets you’ve just developed to determine how each of these options (or a combination of options) would affect your “bottom line.” For example, let’s say that you decide to spend $5,000 on a new computer and peripherals (a nice printer, a scanner, a high-speed fax modem, etc.). Your business profit-and-loss spreadsheet now looks like this:

Now, plug these new figures into your master spreadsheet:

By purchasing that computer, you’ve just reduced your total “business profit” from $10,000 to $5,000. That, in turn:

* Reduces your self-employment tax from $1,530 to $765
* Reduces your total taxable income by $5,000
* Reduces your total tax liability from $2,084 to $31
* (Probably) guarantees that you will not be liable for estimated taxes next year

Chances are that with some careful planning, you can effectively reduce your tax burden before the end of the year, so that when April rolls around, you won’t have to dread the IRS—or the need to estimate taxes next year.

And now, the obvious disclaimer… First, I make no claims to the absolute accuracy of any of the preceding tax figures and percentages. Second, I am not an accountant. In fact, I wouldn’t dream of doing my business taxes without an accountant, and I’d highly recommend that if you are earning money as a freelancer, you seek a qualified accountant who can make sure that you’re doing everything possible to minimize your tax burden. Remember, the accountant’s fee is also a deductible business expense!

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Copyright © Moira Allen