Friday, June 24, 2011

Money & Writing III: The big tax debate - WHAT

To recap:
  • We are on a budget and saving money and not counting on our writing to take us from rags to riches.
  • We are being wise about when we start functioning as a business (per the IRS.)

Now... *rub hands together* TAX DEDUCTIONS!!!!

Before I get too far into this, a disclaimer:

I am NOT a certified tax professional. So don't point to this post and say... "Krista said I could!" The IRS will roll their eyes at you. Really, no matter WHO gives you advice on tax matters, you should always double check it. This is for guidance and to steer you in the right direction, not schedule C filing instructions here:-)

So anyway, what expenses CAN you write off as qualified business expenses? To list them all would be just comical and you'd be yawning. But here are a few common ones, and some common ones to be leary of.

CARS

NO, you don't write off a portion of your car payment... or that brand used KIA you bought with your advance. You don't write off car maintenance or insurance either. You don't even write off your gas purchases (usually.)

What you write off is your mileage. The IRS has a standard mileage rate that you can use to calculate business use of a personal car for tax write off purposes. I won't quote one here, because it changes periodically, especially the last few years with the yo-yo gas prices. So track your mileage. To writer's groups, conferences, meetings with editors/agent, to the post office to mail your contract. Make sure you document where you went and the mileage. It's good to keep a mileage log! The IRS will want to see it if you ever get audited.

Exception is rental cars for while you are away. You just write-off actual expenses then including gas.

HOME OFFICE

Most of us writers use our home as our office. So can we deduct our home expenses, aka mortgage/utilities?

Kinda yes, kinda no. I've heard a lot of opinions on this, so I won't give you another one. But if this is something you plan to do, I'd HIGHLY HIGHLY recommend a tax professional to assist you in your taxes vs "doing" it yourself. There are ramifications, especially if you own your home and later sell it, so you'll want to make sure you know exactly what you are doing before you do it.

You can write off a portion of computer expenses (if you use your laptop 50% personal and 50% business... you'd write off 50% of it...), and any home office items such as pens, pencils, paper, computer paper, ink, printer, etc that is used for your business.

MISC

There are the obvious other expenses as well. Contest fees. Editing fees. Conference fees and travel expenses (airfare, hotel, car rental.) Normal expenses for eating out while at conferences should be write-off-able as well.

THE KEY

The BIGGEST thing to remember is this:

SAVE YOUR RECEIPTS! and DOCUMENT DOCUMENT DOCUMENT!

Even if you don't think you'll be writing anything off this year... you could get to November and get that coveted contract... and you'll need those receipts!

And even if you aren't sure you can write it off... SAVE THE RECEIPT and ask your tax professional. The worst they can say is no.

Here is a good link (with subsequent good links) on what is deductible for small businesses. Some of this doesn't apply to us (i.e. cost of goods sold... unless maybe if you are self-pubbing or selling your own stuff) but it has some good info and links.

Discussion: Any questions on what you can deduct? Any expense you were curious about? And here is a fun question: Who does their taxes themselves... or hires someone to do them?? Will that change (or did that change) once you're published?

9 comments:

Krista Phillips said...

For fun... just got an e-mail yesterday (yes, i'm a geek and get those kind of e-mails...) that the IRS has changed the mileage rate effective 7/1/11. See? Good thing I didn't quote it!

Just for your info, the rate 1/1 - 6/30 was .51 cents per mile... 7/30 - ?? will be .555 cents per mile.

I will now retreat back go geekland.

Pepper said...

Geekdom is a great place to be. I 'get' it. Not IRS geekdom, but cool info about Autism and Traumatic Brain INjury - oh yeah. I do a little jig every time I get a package at the university about a new book related to my field. Ooo, what fun!!!

I REALLY want a shirt that reads: Geeks are the new cool
:-)
Great post, Krista. Now to figure out how much I use my laptop for writing purposes...hmmm....

Krista Phillips said...

Pepper... I'd recommend using a nice guestimatable percentage:-) Me? Considering writing blogs and most of my e-mails are writing related, I'd say 80/20 ish. But I'm also doing consulting work on it as well... otherwise I'd say more 70/30.

Nicole said...

Good tip on the mileage change -- thanks.

I hired an accountant last year when I became a full-time freelance writer. She's worth her weight in gold. I take every deduction imaginable: home office, utlities, mileage, meals, etc.

One thing you didn't mention is research. My accountant allows me to deduct mileage and meals when I go to Starbucks and eavesdrop as long as I can document where in a short story or novel I've used overheard dialogue. I'm also partially deducting a trip to California because it was business related (part research and part of it was spent working on my novel).

Jeanne T said...

Great tips, Krista, I appreciate the update on mileage. I'm gonna have to start tracking that. So, if I'm reading blogs to learn about writing, does that count toward computer use time and deductions? :)

Thanks for sharing tips. Anything that's useful is not "geek-y" in my book. :)

Ralene said...

Thank you for sharing, Krista! Great advice.

I typically do my own taxes online. If I ever start itemizing, I'm sure I'll hire an accountant of some sort. That's just too much work! Although, I could take a class/read some books on doing it myself--then I could use the research for a character. Hmmm... would that make it all tax deductible? lol...

Sarah Forgrave said...

Ah Krista, I knew you and I were kindred spirits

I'm sorta embarrassed to admit I'm the CPA of the group because I don't do anything with individual taxes. When I was in the workforce, my specialty was international taxes for global corporations. Yikes...Not very practical for day-to-day, huh? :)

I do keep track of all my expenses though...in an Excel spreadsheet, of course. And I save screenshots of my bank/credit card statements that show my expenses (as my "receipts").

The one thing I've never thought of tracking is mileage to the post office, etc., when I send out submissions. I've done that a few times and never thought about including it! See, I learned something new today. :)

Krista Phillips said...

Nicole... GREAT addition!!! YES, research trips are totally tax deductable!!! I see a book set in Hawaii sometime soon... HA!

Same rules on personal vs business applies though:-)

Sarah! International TAxes!!! I totally could have used you in my former job!!! Although I dealt more with oversees payroll taxes YUCK YUCK YUCK! One part I do NOT NOT NOT miss!

Marilynn Byerly said...

Unfortunately, car mileage and home office expenses are the two most likely things that will get you audited so unless you can really prove that the home office is only used as a home office don't list it. The same with mileage.

Conventions, workshops, etc., can be a business expense, even if you aren't published, if you can prove that you are working toward publication by having a few rejection letters, etc.

Remember also that you can take health insurance off as a business expense, as well.

I always recommend these articles to writers:

"Authors and the Internal Revenue Code" (written by author Linda Lewis who is also a tax attorney)

http://www.eclectics.com/articles/taxes.html

Article on self-employed writers, recently updated

http://www.tarakharper.com/k_tax.htm

"Taxes for writers" by Cyn Mason (copyrighted 1996 so may be out of date)

http://www.forwriters.com/taxes.html