Record Keeping and Tax Deductions for Writers

The business of writing isn’t easy whether it is the actual writing of a piece of work, finding and dealing with agents, editors and publishing houses, handling all facets of marketing, or managing the financial aspects. But it IS a business and requires some kind of good record keeping that will make your annual tax preparation not a nightmare.

Unpublished vs. Published. If you’re as yet unpublished and don’t think you need to consider record keeping and tax deductions yet, think again. The IRS does state that you can claim a tax loss for business expenses even if you haven’t published anything yet.

Hobby vs. Business: Must show a profit after 3-5 years. Again, this is incorrect. The IRS states “as long as you can prove you are actively pursuing a career in writing” and as long as your expenses are considered “necessary business expenses” they are deductible.

Schedule C Sole Proprietor vs. S-Corporation. This can be a complicated decision once you are at the point of making serious income as a writer. Most writers only need to add the Schedule C form to your individual tax return, which lets you show both income and expenses for your writing business and helps lessen your tax burden.

Proving Pursuit of a Writing Career. Even if you are not published, you can prove your determination to be taken seriously as a writer by sending and keeping copies of letters to agents, editors, or publishers. If you submit or query by email, keep copies of all emails involved, including responses. If you aren’t ready to submit or query on a particular work yet, send letters to prospective publishers requesting submission guidelines and keep copies for your records.

Necessary Business Expenses. The following are expenses to consider for tax deductions, remembering to keep all receipts and any logs:

•Postage, including return postage on your SASE, and shipping fees for books sent to wholesalers, retailers, readers, reviewers, etc.
•Writing-related books such as market guides, how-to books, subscriptions to writing magazines, and necessary reference books
•Office supplies such as paper, ink, envelopes, pens, highlighters, index cards, story board materials, files, blank CDs, sticky notes, thumb drives, card readers, external hard drives, etc.
•Marketing materials such as business cards, bookmarks, flyers, posters, postcards, brochures, press kits, press releases, etc.
•Long distance phone calls related to your writing, such as to a critique partner, agent, editor, etc.
•Internet service fees, if you use the Internet to develop your craft and/or to promote yourself and your work
•Writers group membership dues, gas mileage to meetings or conferences, meals that are related to the meeting
•Writers conference fees, hotel expenses, gas mileage and meals (these are deductible even for unpublished writers)
•Website set-up fees, monthly or annual fees for hosting, domain registration fees, any maintenance done by someone else
•Your published works donated to libraries or given away for promotional purposes (sent to reviewers, offered in contests, donated for fund raisers, etc.) may be deducted at retail value.
•Dry cleaning of clothes for speaking engagements, book signings or other author appearances
•Agent fees and commissions
•Books purchased by self-published and e-published authors to have for resale
•Other necessary business items such as a personal computer, a laptop, desk, filing cabinet, scanner, printer may be deducted based on a portion of the costs between business and personal use
•Office rental space for your writing business (such as renting a cubicle in Office This)

Mileage Logs. The IRS requires that good records be kept of all business mileage. A simple auto mileage log book can be purchased at any office supply store.

Methods to Keep Track of Business Financial Records. You can keep track of your income and expenses in a notebook, on a spreadsheet, or in a checkbook-style program like Quicken. I’m a spreadsheet nut normally, but I recommend using Quicken. At the end of the year you can print out some nice, simple reports that will make your tax preparation work easier.

For more information visit the IRS website at www.irs.gov. You also might want to get copies of publications #334 Tax Guide for Small Businesses and Individuals who use Schedule C or C-EZ and #535 Business Expense (which tells you what you can and cannot deduct), and #552 Record Keeping for Individuals.

4 comments:

Roxann Delaney said...

Thanks, Starla! This is one of those things that many writers forget, especially before that first sale.

Let's face it, everyone. All those little purchases for paper, mailing, highlighters, etc. add up in the end. Why pay taxes on anything you don't have to?

I've been doing my own taxes--yes, including Sched. C and SE--since my first book came out. In fact, I have 3 businesses to keep track of. In the past 9 years, I've learned that keeping good account of every penny going in and out can benefit me when tax season rolls around. I am the world's worst at math, so I have to. It took a while, but I finally found the best way to do it for me. I'm ready to roll when the end of January arrives and don't dread it nearly as much as I used to. It's all become a habit, from record keeping to filing.

BTW, I have a workshop tape on taxes for writers, given by an accountant at RWA national. If anyone would like a copy on disk, let me know. Or just ask Starla if you should have a question. :) She's a wiz at this!

Thanks again, Starla!

Becky A said...

Thank you Starla and Roxann! I never would have dreamed that I could deduct stuff before I was published. This will make it a little easier to justify any expenditures. Except maybe that vacation in the Bahamas! I'll take a copy of that CD and then try to get organized before the next tax season rolls around.
Thanks again, Becky

Reese Mobley said...

Awesome information, Starla. You've covered all the bases. Thanks for making it simple.

Penny Rader said...

Terrific post, Starla! And definitely print-worthy, to keep with our writing records.

It's amazing how all those expenses and mileage add up.

I need to a better job of keeping track as I spend/earn instead of waiting till tax season and missing deductions.