Today we welcome Nancy Sturgis, a consolidation accountant with an automotive company and my baby sister. When I have questions on what I can deduct, what type of receipts I need to keep, I call her. In preparation for RWA next week, I thought a refresher on what we need to keep for taxes would be in order, so naturally, I went to the expert. Please welcome, Nancy Sturgis to the tearoom.
Here we are again, sitting in the tax office having our taxes completed by a professional, and the question arises again “Do you have any other deductions?” and our minds goes blank. Being prepared for your filed return is very important to everyone, especially those who have chosen to have a business. Yes, writers are considered a business. Writers can have income and expenses throughout the year, but reporting the income and expenses can be a chore.
The IRS has a website that can be helpful, but it you do not understand or know where to start, it can be like reading a road map with no names. So, I will go over the most common deductions that might be used in a writer’s world.
First of all and the most important are good records. Keeping good records and physical receipts will be essential to tax filing. Records can be a simple notebook or a sophisticated software program that will help you record all the expenditures and income. We will go over the expenditures and income later.
The IRS is all about proof of what you are claiming. A writer must be able to have written proof that he/she is, in fact, a writer by profession or pursuing a career in writing and not a writing hobbyist.
You are looking for printed proof of two things:
- That you’re actively pursuing a career in writing.
- That your expenses were necessary for that pursuit.
Proof of pursuing your career in writing can include things like requesting submission guidelines from editors, taking writing courses, or purchasing writing how-to books, and even a printout of your published articles list on AC.
All business owners are in need of income, and all income is to be reported to the IRS. Writers income can come in forms of grants, awards, prizes, and royalties to name a few. These are considered “ordinary income” which means that the income is taxable at a top rate of 35%. Just like your income from your job in the work force. Again, these are documented by canceled checks, letters of award and so forth.
Now to the expenses; each expense that will be listed will have an explanation. Some may have conditions or limitations of how much of the total cost you can deduct and of course, they are subject to change from year to year. Check with the IRS website for the latest changes.
Office expenses: if, like most writers, you may work in your home; you may be able to deduct the cost of your home office. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible. If you rent an outside office, the entire cost is deductible. The home deduction can be taken only if you have an area solely for writing; an area can be measured in square feet and calculate the percentage of the home used. The percentage can be used to calculate the amount of mortgage (rent), utilities, internet, repairs etc.
Depreciation: When you buy property for your writing business that will last for more than a year, you may deduct the cost a little at a time over a period of years. Office furniture, Computers, printers and fax machines usually have a 5 year life. Software, cell phones usually have a 2-year life. The simplest depreciation is straight-line depreciation.
Supplies: Supplies are business items that you use up in less than one year. They include everything from paperclips to postage stamps.
Subscriptions: You can deduct the cost of magazine, journal, newsletter, and other subscriptions useful for your writing business. This would include, for example, the cost of any magazine to which you may wish to sell a freelance article. Be careful to not to over use this, you have to be able to prove that this is a business expense, not a subscription that you have always dreamed about.
Research Expenses: Professional writers may deduct their research expenses such as the cost of books or hiring a researcher. Online purchased books are also deductible.
Legal and Professional Services: You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your business.
Insurance: Self-employed people, including writers, are also allowed to deduct 100% of their health insurance premiums from their income taxes. In addition, if you have a home office, you may deduct a portion of your homeowner’s insurance.
Websites: You can deduct the cost of designing and maintaining a website you use to promote your writing business. You can also deduct your Internet hosting fees and the cost of obtaining a domain name.
Outsourcing: If you hire people to help with your writing business, you may deduct the cost as a business expense. For example, you could deduct the cost of hiring an editor to edit your work or a proofreader to proofread it.
Agent Fees: If you have a literary agent, you may deduct all the fees that person charges.
Business Travel: You may also deduct your expenses when you go out of town for your writing business–for example, to attend a writing-related conference or workshop, conduct an author’s tour, or do research or interviews for a specific article or book. These expenses include airfare or other transportation costs and hotel or other lodging expenses. But, you may only deduct 50% of the cost of meals when you travel for your writing business. If you plan things right, you can even mix pleasure and business and still get a deduction.
Meals and Entertainment: The days of the deductible elaborate lunches are pretty much at an end. To deduct the cost of a meal in a restaurant or an entertainment event like baseball game or theater visit, you must have a serious business discussion before, during, or soon after the event. Moreover, you may only deduct 50% of your business meal and entertainment costs.
Home telephone expenses: You get no deduction for a single phone in your home; but you may deduct the cost of long distance phone calls and special phone services you use for business such as call waiting or a message center. You may deduct the full cost of a second phone line you use at home for business, including a cell phone.
Local Travel Expenses: Local travel may include trips to your publisher, to pick up office supplies, or driving to libraries and bookstores. You may deduct trips by car or public transportation. If you like recordkeeping, you can keep track of all your car expenses to figure your annual deduction. But, if you’d rather not keep track of how much you spend for gas, oil, repairs, car washes, and so forth, you can use the standard mileage rate. When you use the standard rate, you only need to keep track of how many miles you drive for business, not how much you spend on your car. A mileage book in the console will keep things handy to record all those miles.
These are the most common expenses that most writers do not take. With good record keeping and a little patience, you can receive the tax credits that are waiting for you to claim
Good luck and happy writing.
Taxes and writers: http://www.publishlawyer.com/carousel8.htm
Tax deductions and writers http://www.nolo.com/legal-encyclopedia/tax-deductions-writers.html