Simple record-keeping and tax deductions for writers
By Pamela S. Thibodeaux
firstwriter.com – Monday August 23, 2004
So, you want to be a writer. Family encourage and support you. Friends pat you on the back and say: "great, maybe we'll see your name on the NY Times Best Sellers List." People envy your creativity, not realising that writing is hard work. Writing is more than creating the Great American Novel. Writing is a Business and a business requires record-keeping and tax preparation.
Many have already begun gathering information and getting things in order. Most will wait until the last minute then be in a panic. Don't be one of them. Be prepared.
Unpublished or new writers may be thinking "oh, I'm not published so I don't need to worry about that yet." Wrong. IRS rules state that you can claim a tax loss for business expenses even if you're unpublished.
Some will say that the rule applies for only up to three or five years, and that you must show a profit otherwise it is considered a hobby. Wrong! According to my tax advisor, the CPA's I've talked to and those I've worked with, the rule states that "as long as you can prove you are actively pursuing a career in writing" and as long as the expenses are considered "necessary business
expenses" they are deductible.
Besides, any writer that's been doing this for a while knows that until you are way up there on the list, you won't be showing a profit. Income, yes. Profit? No. Everything you get out of your writing, you'll put right back into it for things like advertising and promotion. And, yes, Advance Money is considered income. If you use it to enhance, advance or promote your work then chances are every penny you spend may be tax deductible.
Most writers will use a Schedule C or Profit and Loss statement to file their business tax. This form is found in your 1040 forms and instructions book or from your local IRS office. You can file a 1040 form with a Schedule C and still take standard deductions in lieu of itemising. Use your social security number and your name (unless writing under a pseudonym; then it's your name DBA (your pseudonym)). The "Principal Business or Professional Activity Code" (711510) is listed in your 1040 book under the Performing
How do you prove you're "actively pursuing a career in writing" and what are "necessary business expenses"? Here are a few examples:
1).Send letters to agents or editors. Keep a copy and staple their reply to your copy. Postage is deductible as well as return postage on your SASE. Do this via email? Print out a copy of your email query and their response. Not ready to submit yet? Send letters to prospective publishers requesting submission guidelines. Remember: keep copies for your records!
2). Buy writing-related books or subscriptions to internet sites such as firstwriter.com? These are all legitimate expenses. Office supplies (paper, ink, envelopes, business cards, etc.) are also valid expenditures. Have an office set up in your home for your writing? You may be able to write off a portion of your rent or house note and utility bills for the use of this room. Also, if you make any long distance phone calls that are related to your writing (critique partner, editor, agent, etc.) these calls are tax deductible, as are
internet service fees if you're using the internet to develop your craft and/or promote yourself and your work.
3). Join a writers group. Membership dues are tax deductible. Gas mileage is tax deductible when you travel to meetings or conferences, even if your vehicle is normally used every day. Meals are also tax deductible as long as the meal was business related.
4). Go to a writers' conference. Conference fees, hotel expenses, gas mileage and meals are all deductible expenses even for unpublished writers.
5). Have a website? Any fees related to the creation, development and maintenance of this website are tax deductible.
6). Take a vacation with your family. Combine this with a little networking by visiting the local writers group (if you know of one). Visit the library, museum, or any other place that you could claim as research. Talk to celebrities, authors and media about your book, even if it's not published. Collect business cards as verification that this was a "working" vacation. One other thing you might consider: do your children help you by doing research, proof reading, or taking on extra chores so that you have time to write? Their allowance may be deductible. You can pay for contract labour up to $600 per year without providing a 1099, and student income does not have
to be reported along with the parent's income!
7). Pay a housekeeper or babysitter so that you have time to write. All or part of this may be deductible.
**Be careful with these last two and always check with your tax consultant, but many of these are justifiable expenses even for unpublished writers.**
8). Pay a CPA or Tax Consultant to do your taxes? Pay for an evaluation or professional critique of your work? These are considered professional fees and services and are tax deductible.
When asked about paying the Temple Tax, Jesus replied, "render unto Caesar what is Caesar's but render unto God what is God's." Tithes and offerings off your writing income may also be deductible, if you itemise your 1040 or Schedule A deductions.
How do you keep track of all those expenses?
Spreadsheets and receipts. Keep receipts in a standard manila envelope or organized by category in a pocket sized file folder. Spreadsheets are easy to set up and easy to maintain. Most operating systems like Windows come with a standard spreadsheet application. One column (or page) for Income and one for Expenses. What about all those formulas? Simple. Most spreadsheets have
an Auto Sum feature for the addition of a column or you can manually do this by using the formula =sum(cell+cell) or =sum(cell:cell) for a range of cells. Need to subtract, divide or multiply? Formula would be:
=Sum(cell*cell) to multiply;=sum(cell/cell) to divide; and =sum(cell-cell) to subtract.
Published? Here are some additional items that can be written off as expenses:
1). Promotional expenses (brochures, flyers, press kits, press releases, etc. etc.).
2). Books donated to libraries or given away for promotional purposes (sent to Oprah, swapped with another author, donated for fund raisers, etc.) may be deducted at retail value.
3). Books bought for research.
4). Dry-cleaning those nice clothes you wear for speaking engagements, book signings or other author appearances.
5). Postage and/or shipping fees for books sent to wholesalers, retailers, readers, reviewers, etc.
6). Agent fees and commissions. Compare your royalty statement against your 1099 (Miscellaneous Income Statement). If the amount does not show royalties less agent fees and commissions those are tax deductible!
Self-Published or E-published and have to buy copies of your book to resale? Set up costs, cover art, and the charge for producing (or buying) the books are tax deductible! Occupational or Resale License fees are also deductible.
Remember, if it falls under "Necessary Business Expense" it is deductible!
Worried about being audited? Don't. Be careful and be honest. Claiming you bought a new boat to learn how to water-ski so that you can write about water-skiing will not cut it, but nearly everything else will fly, as long as you have the records to prove it; hence the value of good record-keeping.
It's never too early or too late to get organised for tax season. Remember, tax laws change yearly. For more information visit the IRS
website @ www.irs.gov or call them toll free at: 800-829-3676 and request publications such as # 334 (Tax Guide for Small Businesses and Individuals who use Schedule C or C-EZ), #535 (Business Expense – this guide tells you what you can and cannot deduct), and #552 (Record keeping for Individuals).