Taxes and Record Keeping for Writers
If you take your writing seriously and are doing it as a business, pay particular attention to this article and the Writer’s Deductions as well.
You do not have to show an income to take advantage of the deductions listed. You must have proof that you are serious about the business of writing (such as copies of letters sent to/from agents or editors). If you have losses, the more you look like a business, the less likely the IRS will attack you.
How to look like a business
- Keep records of your expenses, income, and efforts at making sales or attracting interest in your work.
- Work with the IRS by taking advantage of the forms and deductions usable by you as a business.
- Keep track of the hours you spend writing.
- Keep track of any career-advancement actions, such as conferences, classes, and workshops attended.
- Keep track of submissions and rejections to show pursuit of publication.
- Keep track of volunteer writing, such as church or organization newsletters, to support that you are qualified to be in business as a writer.
- Keep a phone log of business-related calls.
- Give your business a name.
- Full-time freelancing professionals with writing as their sole source of income.
- Part-time freelancing writers who also hold a full- or part-time “day job.”
- Full- or part-time freelancing writers who also have a working spouse with a full-time “day job.”
Basic Tax Forms Required
- Schedule C: Unless you have made a large number of sales and fairly high income, you simply need to fill out and add Schedule C (Profit or Loss from Business) to your normal tax return.
- Schedule C, in this case, means you are a Sole Proprietor. This means you are the owner of a business as an individual and are solely responsible for all aspects of that business. You can have your real name, your a.k.a., or some other business name for the proprietorship.
- Report the writing income, expenses, depreciation, and losses on this form.
- A “business code” is required on Schedule C. Use 711510 for “independent artists, writers and performers.”
- Schedule SE: If you report net income rather than a loss, you need to file Schedule SE for Self-Employment Tax. This form is for individuals who work for themselves to determine the social security and Medicare tax required.
Incorporating Your Writing Business
- If you become so famous and productive (everyone’s goal, of course), you might consider having you or your business incorporated. Your accountant can give you the full details, advantages and disadvantages of either being a C-Corp or an S-Corp.
- A corporation will also need to file a tax return each year.
- Another reason for incorporating is when you have employees: researchers, secretaries, etc.
Keeping Tax Records
- Keep tax records four years from the date of filing a tax return.
- Keep all tax return copies after disposing of the financial records.
- The IRS expected you to pay estimated taxes if your anticipated tax liability for the coming year is $1000 or more.
Deductions You Cannot Take
- Money owed to you and not collected from a publisher that goes out of business.
- Advertising: all promotional materials, ads, payment for web sites
- Car expenses: mileage to meetings, conferences; must keep a log of dates, destination, reason, mileage
- Commissions: fees paid to agents
- Computers & software: See IRS Code Sec. 179 (Ask your accountant about this terrific deduction involving being able to write off capital purchases rather than depreciating them.)
- Depreciation: Property such as a desk, bookcase, computer or printer acquired for business and expected to last more than one year cannot have the entire cost as a business expense deducted in the year you acquire it. The cost must be spread out over more than one tax year and you deduct part of it each year on Schedule C. OR you can choose to deduct the entire cost of certain depreciable property in the year you placed the property into service. This is a “section 179 deduction.” See IRS Publication 946 for more information.
- Dues: writers groups, other professional associations necessary to the genre in which you write
- Employee benefit programs: These come into play if you have employees working for you, such as someone who does research for you—particularly your spouse. This would include your own health insurance or part of a health insurance package from somewhere else. Ask you accountant about this.
- Entertainment: ordinary and necessary expenses to entertain a client, customer, or employee if the expenses are directly related to the writing. You cannot deduct the cost of your meal as entertainment expense if you are claiming the meal as a travel expense. Generally, you can deduct only 50% of your entertainment expenses and you need records to prove the business purpose.
- Fees: fees paid for self-publishing
- Home office: must fill out Form 8829. This deduction is ONLY available if you have a profit.
- Insurance: office liability, etc.
- Office equipment: desks, chair, copier, fax machine, etc.
- Office space rental
- Office supplies: paper, printer cartridges, pens and pencils, files, etc.
- Pension & profit sharing plans: Simple or KEOGH plans, talk to a financial advisor
- Postage and delivery
- Professional services: legal and accounting fees
- Project costs: an author does not have to “capitalize” or accumulate the project costs to be deducted in a future year, when the income is actually received. You are allowed to deduct your project costs in the year they are incurred.
- Reference books/magazines
- Rent or leases: office space outside the home, equipment rental
- Repairs: on office equipment
- Subscriptions: magazines and newspapers used for potential research, sample magazines for market research, magazines relevant to your field of writing
- Travel: airline and train fares, hotels, tolls, rental cars—specifically apply when in conjunction with conferences, meetings, or research trips (which can be nearly every trip taken if you can weave it into a book/article/or story sometime)
- Utilities: for rented office space
Publish Lawyer: http://www.publishlawyer.com
The Writer’s Edge: http://writersedgeinfo.blogspot.com/2009/04/of-taxes-and-writer.html
© 2012 Starla Criser