Author’s fee and tax – simply explained

This is what authors have to do with their first earnings
Most authors write out of passion. Nevertheless, many of course hope to earn money with their work. Being able to make a living from writing is her big dream. But have you already thought about what to do once you make money from writing? Like all other income, the earnings from the literary activity must be declared in the income tax return. The tax office wants to be informed about every relevant profit. In this blog article, we’ll explain what to do once you make money from writing.

Side job or hobby?
At the very beginning, there is always the question: Is your literary activity a secondary activity or a hobby? Put simply, it’s a hobby if you don’t have the goal of making a long-term profit from writing. If you want to make a profit, it is a secondary activity that you have to register and specify.

Then it gets a little more complicated. If you generate profits of more than 410.00 euros per year, your writing activity is initially classified as a secondary activity.

If you make losses annually, you may receive a preliminary tax assessment: For up to five years, just like a newly founded company that is only being built, you can make losses and pursue a secondary activity with the intention of making a profit. If you do not get out of the loss zone within the five years, your tax assessments will be revoked retroactively to the hobby and you will pay back all tax savings that you have received due to the temporary classification as a secondary activity.

However, the tax office always decides on a case-by-case basis how it classifies the authors.

Register your activity
If you pursue profit-making intentions with the writing, you must register the literary activity. To do this, fill out the questionnaire for tax registration. At first glance, the questionnaire seems long and complicated. However, most fields are superfluous for authors. For step-by-step instructions on how to complete the questionnaire, see the e-book “Authors to the Tax”.

Like all other workers, freelancers are required to have health insurance. you can voluntarily take out statutory insurance with your health insurance company – then you can do without pension and unemployment insurance.

The social security contributions depend on your income. Those who earn little also pay less.

What do you have to hand in where?
You submit the questionnaire for tax registration, as well as your annual tax return, to the tax office responsible for you.

If you earn your money only by writing books, you do not need a trade license. If, for example, your goal is to have your own shop for your books, merchandise, and other products that can be purchased, you must register a business. The easiest way to do this is at the local trade office. In smaller towns, this is often merged with the public order office. The business registration costs a mid-double-digit amount between 10 and 60 euros. This amount is then your first operating expense!

The most important points in the business registration are the start time and the type of business. The date can also be a few weeks to months in the past if you have already carried out commercial activities with your business and invoiced them for the time of application.

The type of business depends strongly on your project. Services, trade, or a publisher are all possible. If you are unsure, you can also describe the activity in general. However, it is important to read out what you are doing in your business.

If it is a business, you must also register with the Chamber of Industry and Commerce in your region (IHK). You can also do this via the trade office. As a rule, liberal professions such as those of authors do not have to be registered with the Chamber of Industry and Commerce. However, there are exceptions. If, for example, you have opted for a GmbH or UG for the legal form of the liberal profession, this must also be registered with the IHK. Companies offer the advantage that you are not liable for your private assets. However, you are then obliged to keep records and charge VAT, which you do not have to do in the liberal profession. You’ll also need a business account to separate your personal earnings from those of your business. However, this step is only suitable if you plan to invest a lot of capital in your company and pursue larger plans with your literary independence in the long term, for example, if you want to become an entrepreneur as part of a collective of authors or set up a self-publishing company.

Revenue and expenditure
If you make money from writing, you will also spend money on writing. This is where the well-known phrase comes in: “You have to spend money to make money.”

The revenues are usually relatively easy to add up. Whether it’s book royalties, services like sensitivity reading, test reading, or copywriter fees, every penny must be properly documented and reported. Since you write an invoice for each intake, you keep an overview here and there should be no major problems.

In terms of expenses, a lot can accumulate over the year and the overview can be lost. Organize all your receipts from the beginning so that you can always fall back on them. Operating expenses include everything you invest in the context of your writing activities. Common services such as proofreading, editing, and book typesetting are self-explanatory. Over time, however, there are additional costs as an author, which depend on what exactly you do. Do you go to the book fairs in the country every year to present your works at a booth? Both the rent for the stand and the travel expenses are operating expenses. Do you send your books by post to readers? The shipping costs can also be paid through your company. The new laptop that you only use for writing, training, advertising in the form of business cards and flyers or the paper for the printer – these are all operating expenses.

For the tax return of your liberal profession, you must prepare an income surplus invoice (EUR). All income and expenses are compared in this form and thus the profit is calculated.

The first income as an author brings with it one or the other obligation. To be on the safe side, you should take care of these things as soon as possible. Then nothing stands in the way of your new life as an author.