For years I spoke about tax tips for writers/publishers in my “How to Sell 75% of Your Freelance Writing” and “Writing Travel Articles That Sell” seminars in CA. Since I often had taxfolk in the audience (even the IRS auditor I was requested to visit every six years or so), I had to keep up on the deductions and to make it simple.
To my great delight, the table was turned and I was in the audience (at BAIPA, the Bay Area Independent Publishes Assn, north of San Francisco) last Saturday and heard a very comical Bonnie Lee, an Enrolled Agent, bring us all back up to date. (Bonnie published Taxpertise, The Complete Book of Dirty Little Secrets and Tax Deductions for Small Business the IRS Doesn’t Want You to Know [available at major bookstores] and has a tax-related radio show every Tuesday from 1-2 p.m. [PST] on KSVY at 91.3 f.m., streamed at www.sonomasunfm.com.)
Let me share (and update) some of the most important writing- and publishing-related things Ms Lee said:
* If your writing is a hobby, you can write off provable expenses equal or less than your income.
* The IRS doesn’t have rigid do/don’t guidelines for any business, including publishing or writing. They use your intent (or purpose) as the guideline. You are allowed to deduct all “ordinary and necessary” business expenses.
* If your writing is a business, your expenses can exceed your income. though if you don’t show a profit at least 2 of 5 years, the IRS may disallow any losses as hobby losses.
* Audits usually come three years after the year in question, so keep a separate file of the paperwork for every year. Also keep good books and records. It’s infinitely easier to remember the mileage info if you keep a current mileage log.
* To my surprise, even fiction-writing costs can be deducted the year they are incurred. We are exempt from the capitalization rule.
* You don’t need receipts for meals and entertainment expenses under $75, but to prove you didn’t invent the costs on 4/14 you need some kind of documentation.
* You can’t deduct anything illegal, like speeding or parking tickets incurred in, say, mailing a query letter or manuscript.
* If your kids are under 18, you can hire them as employees. Thus they must be paid, but you needn’t pay tax or withholding. (My daughters did my fulfillment in junior and senior high school.) Be sure to record their time on timesheets and provide them with W2s at the year’s end.
* If you earn under $100,000 or so, consider sole proprietorship for your company. If you are worried about liability, a corporate structure provides more protection. Check with your attorney and tax pro.
* If you donate books to a bona fide charity, you can write off the selling price of the book.
* You can send in amended returns but the audit risk goes up.
* Publishers probably need a business license. Writers probably don’t.
* There can be reasons to keep past tax records and documentation for seven years, but you must keep it for three (and some states, like CA, for four).
* If you use a room or specific areas of a home solely and on a regular basis for business (even writing) all directly related expenses can be deducted. It’s not a red flag area. They probably won’t accept landscaping!
* The IRS never emails you. Report any phishing, and don’t pay anything from an email. Forward all bogus emails to firstname.lastname@example.org.
* If you are self-employed you will pay 15.3% of your profit for FICA and Medicare (self-employment tax).
* If you are a sole proprietor, you always report your writing/publishing income and expenses on Schedule C.
My advice: Writer’s Digest Magazine usually has an up-to-date (and sometimes interesting) tax-related article in the spring that expands on these tips. Query letters are the best tool to prove to the auditors that the purpose of a trip and related costs are income-based. Keep an up-to-date correspondence record, too, to show the amount of activity and the businesslike ways your business was conducted. (I expand on this, particularly for travel writing, in the Travel Writer’s Guide.)
Best wishes (on or by April 15),