Two certainties in the life of a writer. Deadlines and Taxes.
You know what a deadline is. It has the word “dead” in it for a reason. And intrinsic to the reality of taxes is the April 15 income-tax filing deadline for those living in the United States.
But what about those taxes?
Many articles appear every Spring about taxes when approaching the filing date. But I thought we should explore a couple of items now, so there won’t be any surprises next year.
First, is the obligatory disclaimer. I am not a tax attorney or a tax accountant. I am merely discussing concepts and ideas that you may or may not use in your situation. And, as always, when it comes to your taxes, make sure to consult a professional. (We list some who specialize in working with writers in the annual Christian Writers Market Guide or the online version at www.christianwritersmarketguide.com. One of those is Chris Morris who can be found here.)
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, purchasing books on writing, website 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 some people use the camera on their phone to record the receipt. The problem is later organizing the information in one place. If you have good recommendations, post them in the comments below. (Tax Act provides an article with ideas here.)
Now is the time to start trying to collect your 2022 expense receipts if you haven’t already done so. Trying to find that receipt on April 14 might be a challenge.
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. 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 new, very expensive tax liability and additional penalties. Read these excellent articles if your business is in danger of being classified as a hobby:
“When the IRS Classifies Your Business as a Hobby”
“What Every Self-Published Author Needs to Know About Taxes”
“IRS Hobby Loss Rules: Deductions for Doing What You Love”
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 can recommend the book New Tax Guide for Writers, Artists, Performers and Other Creative People (Fifth Edition: 2016) by Peter Jason Riley. This is one of the few designed specifically for those in the arts.
Another good one is Carol Topp’s Business Tips and Taxes for Writers (2016).
Another is the “Tax and Business Guide for Authors” course at The Christian Writers Institute. It is currently priced at $99 for the multi-session course by a tax professional. Be sure to join the Institute (it’s free) and see if there is a price reduction or a sale, or an updated version of the course. However, $99 is a good investment if it saves you as much or more in the coming year.
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 writer who gives anecdotal information at a writers conference. The IRS won’t accept the excuse that “Shirley told me it was okay to write off my Australian cruise because I was researching an article about Sydney!”
[This is a rewritten and updated version of a post published in January 2012.]
True story, unfortunately. I have to say that the IRS people with whom I spoke were first politely intransigent, and then apologetic.
They do make mistakes (in this case a simple one), but always be prepared, with documentation, to fight your corner
I once purchased a CD
(that’s the financial instrument)
and it simple seemed to.me,
but when through its full term it went,
and the money was returned,
the IRS just struck me numb
when they said, “Aha, You’re burned!
Its value is your income!”
I had to go through many layers
of of the bureaucratic maze
touching base with all the players
over many ‘on hold’ days
before I found the fed’ral hero
who saw (x-x) is zero.
Sheri Dean Parmelee, Ph.D.
Thank you for this fabulous and very valuable information, Steve! I appreciate the time you took to write it, to help us all out. Now about that submarine….
Amber (Schamel) Lemus
Thank you for this helpful information, Steve. Avoiding the hobby pitfall was something I needed some clarification on.
Sharon K Connell
Thank you, Steve.
Linda Riggs Mayfield
This is an extremely important article with great advice, Steve. My husband and I have been audited twice. We came out fine, but it is NOT an enjoyable process! I can personally attest that only the expenses for which you have those receipts and proofs you mentioned will be allowed, and if the IRS disallows some of your deductions and your adjusted income changes and you owe more taxes, late penalties ARE assessed. The IRS can go back seven years for audits. The home office deduction rules change a little from year to year, but the key phrase is always that the space must be used “exclusively and regularly” for business. Publication 587 gives the IRS rules and instructions for Form 8829 Expenses for Business Use of Your Home. The strict interpretation of “exclusively” is that if you use that office space for ANYTHING else, you cannot deduct expenses for it as a home office. (The example of a disqualifier in the 2021 IRS instructions was an attorney whose home office is the den. He cannot count it if the family also uses the den. The example in the software I used was that allowing your kids to play in your home office disqualified it for deductions.) Qualifying to take the allowed deductions for a home office requires a lot of planning and self-discipline that includes the whole family. This year I decided it just wasn’t worth the hassle. and I’m using my space as I please and will just not take a home office deduction.
Taxes are such a scam… And we are supporting so many ungodly things… I wonder if it is even worth it unless you are sure you have best seller. And I don’t care what anyone says, they are unconstitutional. Why should 35 percent of what you make go to someone who doesn’t do a thing for you? Your vote certainly doesn’t count any more. So I would find every lawful deduction. Still it is a form of bondage and theft. Just my opinion…