Jan

16

2012

Deadlines and Taxes

by Steve Laube

Two certainties in the life of a writer. Deadlines and Taxes.

You know what a deadlines is. It has the word “dead” in it for a reason. And intrinsic to the reality of taxes is that April 15th filing deadline.

But what about those taxes?

Many articles appear in early April about taxes when approaching the filing date. But I thought we should explore a couple items now so there won’t be any surprises come April.

First, the obligatory disclaimer. I am not a tax attorney or a tax accountant. I am merely discussing concepts and ideas which you may or may not use in your situation. And, as always, when it comes to your taxes, make sure to consult a professional.

Some of you may roll your eyes and say, “I already know this.” But remember there was a time when you did not. I get many “beginner” questions each year from debut authors who are discovering much of the business side of this industry for the first time.

Keep Good Records

One advantage of the self-employed writer is the ability to deduct certain expenses as they relate to the writing profession. Writers conference fees, writing magazine subscriptions, web site hosting fees, promotional items used to market your book, etc. These are possible deductions, but you must have a record of each expense.

And I mean keep everything. Receipts, ticket stubs, bank statements, check registers, ATM receipts, mileage (when and where and how far). Nowadays a good scanner and smart use of Evernote can put it all in one place.

Now is the time to start trying to recreate your 2011 expenses if you haven’t already done so. Trying to find that receipt on April 14th might be a challenge.

Hobby-Loss Rules

If you are writing as a hobby or for something that only occasionally earns money, then you can only deduct expenses equal to the amount of your revenue. In other words you can’t buy a submarine and claim it was for research for that underwater thriller you’ve been trying to write for years.

But if you have the “intent” to derive a living from your writing you can show a loss (and maybe deduct that submarine!?) Proving intent is something judged case by case. Put it this way, if you show a loss in your writing business for five consecutive years, expect a red flag to appear in the IRS inbox. It is commonly understood that the IRS will accept that you are running a business if your writing work shows a profit in at least three of the last five tax years. But in an audit the IRS can go back many years and determine if your deductions were valid. If disapproved you will end up with a very expensive new tax liability and additional penalties. Here is the official page on the IRS site for their Hobby-Loss Rules.

Separate Your Home from Your Business

As much as possible keep your household income and expenses separate from your income and expenses for writing. It can be as simple as keeping a separate bank account. (This is one way to prove “intent,” see above.) And then keep records separately for the business using Quicken, Mint.com, or a spreadsheet.

If you work out of your home, consider exploring the “home office deduction.” But be careful. If you write occasionally from the home computer and that computer is used by other family members for things other than your writing business, it is likely you will not qualify.

I know of some authors who have a separate phone line (or cell phone) just for their business. That way interviews and publicity inquiries from the Today Show don’t come to the house where your teenager answers the phone and shouts, “Mom! Some dude is on the phone for you!”

Resources

I can recommend the book New Tax Guide for Writers, Artists, Performers and Other Creative People by Peter Jason Riley. This is one of the few annually updated tax guides that helps those in the arts. This 2012 edition is supposed to be available soon.

The other is Carol Topp’s Business Tips and Taxes for Writers. (Amazon link; Kindle link; Direct) It is simple, clear, and specifically intended for the writer.

And last, an excellent book The Money Book for Freelancers, Part-Timers, and the Self-Employed: The Only Personal Finance System for People with Not-So-Regular Jobs by Joseph D’Agnese and Denise Kiernan. It is one of the few books out there that is specifically designed to help those in the arts.

For many of you, numbers are either a toxic topic or the equivalent of hieroglyphics. But take this issue seriously. The writing profession is ultimately a business. Granted a business based in the Creative Arts, but it is still a business. Talk to a qualified tax accountant if you have questions. Never rely on the hearsay of another writers who gives anecdotal information at a writers conference. The IRS won’t accept the excuse that “Sally told me it was okay to write-off my Australian Cruise because I was researching an article about Sydney!”

One Response to “Deadlines and Taxes”

  1. Carol Topp, CPA January 16, 2012 at 2:40 pm #

    Steve,
    I AM a tax accountant (a CPA) and so I can assure you that what your wrote was spot-on accurate!

    As for those who call themselves hobby writers, you stated “you can only deduct expenses equal to the amount of your revenue.” While you are correct, it is actually worse than that. Most often hobby expenses are deducted as misc itemized deductions subject to a 2% of AGI floor. In plain English that means that only hobby expenses that are more than 2% of your Adj Gross Income (AGI) are deductible. Most hobby writers will not clear that threshold and get to deduct none of their expenses. :(

    So, you are more than correct in saying “The writing profession is ultimately a business.”

    Thanks for the book mention.

    Carol Topp, CPA
    Author of Business Tips and Taxes for Writers

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