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?

Money & Writing II: The big tax debate - WHEN

Don't ya just love taxes??  I know... dumb question... of COURSE you do! *wink*

The million dollar tax questions many unpubbed/newly pubbed writers ask are these:

When can I start writing off my writing expenses on my taxes?

and

What expenses can I write off?

While I'm no expert (my expertise is more in the payroll side of taxes vs the reporting side), I can give you a few clues and point you in the right direction!

The When (I'll talk about the what in my next post...)

As a very general rule of thumb, you can write off expenses when your writing turns from hobby to business.

WHEN that occurs is subject to a LOT of subjection!

It doesn't necessarily have to be when you are "making money" from your writing. This is when you are spending money to try to "make" money. Many writer's spend years writing their first novel, or for four novels, before they actively start trying to make money from them. So it's kinda hard sometimes to know when you've flipped over from hobby to side-job.

Questions to ask:

Do you have an agent?
Is an editor seriously considering publishing your work?
Are you writing articles and getting payments (even small) for them?
Are you actively writing on a continuous basis, not just when you "feel" like it, and tracking your hours?

If you answered yes to most of these questions (not just one...), then you might have a "business."

But then again, you might not.

The thing about taxes is this: It's not really black and white. Not this particular issue anyway. There are many things left up to interpretation, and an auditor could side either way.

So beware, if you claim your expenses as business expenses and write them off with no income associated to them, this may raise a red flag with the IRS. If this is your situation, I'd HIGHLY recommend consulting with a tax professional when filing your return, especially if taxes make you a wee bit nervous!

The other note is that you can only file a return writing off expenses with no income for a short period of time (I believe 3 out of a 5 year period...). On one hand, if you are spending a lot of money THIS year, and see the fruits of your labor NEXT year, it would stink not to be able to write off those expenses. On the other hand... writing them off TOO early might be to your detriment too (see note about IRS red flag earlier.)

Have I mentioned how much I love taxes? *grin*

Regardless of if you think you can write off your expenses yet... start tracking them NOW! Get a system down, track your hours (good proof that you are spending dedicated time on a regular basis... points to more of a business vs hobby) and keep your receipts.

You'll be much more prepared for when you DO start rolling in the dough. (Here's to dreaming!)

Discussion: Have you started to track your expenses yet? Don't you just LOVE taxes??