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Wiki Articles - Tax Tips for Writers & Authors
Sometimes, another writer, upon learning that I'm both a book author and tax accountant, asks me for the best ways that authors can minimize their income taxes.
If I can, I try to weasel my way out of the discussion, offering up such basic ti
If I can, I try to weasel my way out of the discussion, offering up such basic ti
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
dbits as, "Well, be sure to look at the home office deduction." And "do use a basic accounting program like Quicken or Microsoft Money so you capture all of your writing business expenses."
Usually, those simplistic answers work. Usually, aft
Usually, those simplistic answers work. Usually, aft
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
r dolling out such drivel, the guy wanders off to get another drink and more appetizers.
Everyone once in a while, though, I encounter some writer who's really motivated to save on taxes. Usually, someone now making good money writing... When
Everyone once in a while, though, I encounter some writer who's really motivated to save on taxes. Usually, someone now making good money writing... When
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
I can't deflect their questions in some other way, I tell them about the three best ways that authors have to save on taxes.
Technique #1: Smooth Your Income
Whatever you think of the US Internal Revenue Code, you need to know that i
Technique #1: Smooth Your Income
Whatever you think of the US Internal Revenue Code, you need to know that i
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
's quite progressive. That progressivity means the more you make, the more you pay. The progressivity also means that if your income fluctuates, your income taxes go up even if you make the same money on average as someone else makes whose inc
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
ome is steady.
To give you an example of this, suppose that you compare two writers, John and Jane. If John makes a steady $60,000 a year and has a mortgage, a spouse and couple of kids, he might pay about $1000 over four years (net of tax cr
To give you an example of this, suppose that you compare two writers, John and Jane. If John makes a steady $60,000 a year and has a mortgage, a spouse and couple of kids, he might pay about $1000 over four years (net of tax cr
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
dits such as for children.)
In comparison, suppose that Jane averages $60,000 a year, but sees her income fluctuate between $30,000 a year and $90,000 a year. She still makes $60,000 a year on average. Yet if she also has a spouse, two kids a
In comparison, suppose that Jane averages $60,000 a year, but sees her income fluctuate between $30,000 a year and $90,000 a year. She still makes $60,000 a year on average. Yet if she also has a spouse, two kids a
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
nd a mortgage, she'll probably pay $8,000 to $10,000 in taxes over those same four years.
Please note that over the same four years, then, the two writers make the same amount of money: $240,000. But what they pay in taxes differs radically.
Please note that over the same four years, then, the two writers make the same amount of money: $240,000. But what they pay in taxes differs radically.
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
ane pays eight to ten times what John pays! Yikes!
What can Jane do? Well, let's bring this back to the example of working writers. Jane can probably rather easily smooth her income. She can make sure that she's not stacking two big advances
What can Jane do? Well, let's bring this back to the example of working writers. Jane can probably rather easily smooth her income. She can make sure that she's not stacking two big advances
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
in the same year. She can spread out advance payments over two or more years. She can even try to stuff more of her expenses into the good years. In the good years, for example, she can buy new computers, take those graduate classes, or top of
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
her pension.
Technique #2: Setup an LLC and Elect S Corporation Status
I've written and talked much about how S corporations save taxpayers money and how the right way to set up an S corporation is first create a limited liability co
Technique #2: Setup an LLC and Elect S Corporation Status
I've written and talked much about how S corporations save taxpayers money and how the right way to set up an S corporation is first create a limited liability co
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
mpany and then ask the IRS to treat the LLC as an S corporation for tax purposes.
Let me review the basics here again, however. Suppose that you're making $90,000 a year as a writer or author. If you just treat your writing business as a sole
Let me review the basics here again, however. Suppose that you're making $90,000 a year as a writer or author. If you just treat your writing business as a sole
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
proprietorship, you might pay $12,000 in income taxes on the $90,000 and then another 15.3% self-employment tax, or roughly $13,500, on the $90,000.
If you set up an LLC and have the LLC treated as an S corporation, you'll still pay the same
If you set up an LLC and have the LLC treated as an S corporation, you'll still pay the same
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
$12,000 in income taxes. But you'll only pay the 15.3% self-employment tax on that portion of the profit that you categorize as wages. If you categorize, say, $30,000 of the profits as wages, you'll pay $4,500 in self-employment taxes. (The ot
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
er $60,000 in remaining profits, by the way, gets paid out as a dividend-like "distribution.")
Using these example numbers, then, you would save about $9,000 a year in employment taxes by using an S corporation.
Two quick points about S corp
Using these example numbers, then, you would save about $9,000 a year in employment taxes by using an S corporation.
Two quick points about S corp
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
orations: First, S corporations require some extra tax and accounting so you don't get to spend all of your savings. Some of the savings go to the lawyer, the accountant, and the bank. Second, you absolutely must set your salary to a reasonabl
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
level.
Technique #3: Relocate Your Residency
One final, easy planning gambit. Remember that there are states like Alaska, Florida, Nevada, Texas and Washington that don't charge residents state income taxes. Accordingly, if you reloc
Technique #3: Relocate Your Residency
One final, easy planning gambit. Remember that there are states like Alaska, Florida, Nevada, Texas and Washington that don't charge residents state income taxes. Accordingly, if you reloc
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
ate to one of these states, you'll automatically drop your overall tax bill because you won't have state income taxes.
One of the benefits of writing is that you do get to live wherever you want. Why not choose a place that doesn't tax your w
One of the benefits of writing is that you do get to live wherever you want. Why not choose a place that doesn't tax your w
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
iting income?
But a caution: Do be careful that you don't get blindsided by the other taxes a state levies. For example, Washington state where I live charges a four-tenths of a percent excise tax on royalty income. This is still a lot lower
But a caution: Do be careful that you don't get blindsided by the other taxes a state levies. For example, Washington state where I live charges a four-tenths of a percent excise tax on royalty income. This is still a lot lower
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
tax rate than high tax states like California or New York charge writers. Which maybe explains why during the technology boom in the 1990s many computer book writers making high six figure and low seven figure incomes moved to the Seattle area
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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