A recent comment on an earlier blog post about how money flows to writers prompted this blog post. This is a refresher course in how that "big book deal" actually translates to your finances.
For the ease of discussion, I'm going to use ball park, round numbers as the advance amount.
When your brilliant and sharkly agent sells your book she calls you up and you both whoop with joy. Then you get down to brass tacks on how much that offer is for:
$10,000 per book for a two book deal. That means the offer is for $20,000 (2 books x $10k each)
When the contract is negotiated and signed, you'll get a check for a partial amount of that. Depending on how the payout is structured on the contract it could be:
1. 1/2 on signing, 1/2 on delivery
2. 1/2 on signing, 1/2 on publication
3. 1/3 on signing, 1/3 on delivery, 1/3 on publication
4. 1/4 on signing, 1/4 on delivery, 1/4 on publication, 1/4 on paperback pub.
The HIGHER the advance amount for each book, the more splits you're likely to have.
Using our $10K book, here are the numbers:
1. If it's half on signing, half on something else:
$10,000 divided by two payments =$5,000 for the on signing payment.
Less: 15% for your brilliant, sharkly agent is minus $750.
Total to you for for Book One on signing is $5000 minus $750 which is $4250.
BUT, there's more! You ALSO receive the on-singing payment for Book#2.
Thus the check you get for on signing is $8500. ($4250 for each of two books!)
The next payment you see is $4250 (Book 1, less commission) either on delivery or on pub
depending how your contract payout is set up.
The next payment is on delivery or on pub of Book 2, and that's another $4250. And this is where things get tight. If D&A is delayed, or publication is moved, you might go a year between these payments.
I've seen all those things, and other calamities as well, happen.
Here are some other things that can muck up the works:
You sign a three book deal, but you can't deliver the third book for some reason.
In this case, you have to return that on-signing payment you got for Book#3, way back when you signed the contract.
And here's the kicker: we don't return the commission. You're on the hook for the entire amount.
Generally we can negotiate with the publisher about this, but this is something to remember when you're planning your finances. Don't spend the money received on a book you haven't written. Better to drop that in a savings account or a interest bearing instrument until you know for sure you get to keep it.
Obviously this is more important for big ass deals of $100K/book than it is for $10K/book.
This also applies to translation and audio deals.
(Generally, you don't have to give the money back if the publisher cancels the book.)
Here's another thing to remember: the advance money may be the only money you see on a book. The higher the advance, the more that has to be earned before royalties are paid. Royalties are paid to the author ONLY when the book has earned back the money paid out on the advance. I rep books that have never earned out, and some that earned out within weeks. You might guess that the lower advance ones earned out faster--that's not always the case.
The next thing to remember is that the money from the publisher is all taxable. When you start your writing career, you're esssentially starting a small business. You'll need to file a Schedule C with your income tax forms, showing how much you earned and how much you spent. It's entirely possible you'll spend more than you earned. That's one (of many!) reasons you keep very good records and don't get cutesy with your deductions. The IRS looks askance at people who deduct their living room couch as "home office" even if that's where you do your writing. Also deducting trips to France as "research"is a really good way to get a second set of eyeballs on your tax return. You want to be careful, and follow the law scrupulously here. A good tax preparer is essential.
And you'll pay tax on the money as you receive it, so that first big chunk o'advance: you'll pay tax on all of that, even though it's income on a book that isn't written yet.
Very few writers are living on what they make publishing books.
Any questions? Fire away in the comments column.