Friday, September 7, 2012

Getting to Know and Love the IRS

Over the last couple of weeks the topic of the business of writing has come up on various chat lists. Since I have been operating my free-lance writing and editing business as a professional since the 1980s, with a bow to the IRS every year, I thought this might be the time to start talking about how I do it.

Even though the end of the year is four months away, and the filing date for tax returns is a full three and a half months after that, the best time to get organized is now. If any writer is going to file taxes as a professional, you have to be organized and ready before the deadline.

There are several programs that will allow you to keep your information on the computer, and from there you can easily load it into Turbo Tax. You can also keep it in a simple ledger or account book. At my day job, our accountant/auditor uses the computer, of course, but their records include a huge ledger into which they glue (yes, glue) copies of the important statements and documents. As a great fan of Charles Dickens, I find this charming and oddly comforting.

My files record everything related to my business of writing and editing each year--all income (publishing, teaching, talks, consulting, editing) and expenses (and this is where you have to be careful, to satisfy the IRS).

I record my income and expenses by month. I categorize almost everything under one of the following headings: Income, Office Expenses, Dues and Publications, Telephone, Travel and Entertainment, and Books. These headings should make clear what the basic deductible items are--any money received as a writer/editor/teacher (except salaries), any shipping of books, postage, gas and tolls while traveling to give a talk or serve on a panel, dues in MWA or Sisters in Crime, or any of the other writers' organizations. I record conference fees separately, since I don't attend conferences every month. You can record under these categories things like printer toner, paper, envelopes, food at conferences, and mailing samples of your work or stories to magazines. The library you build as a reference resource is also deductible, though the IRS has special guidelines for books. Even Turbo Tax is tax-deductible.

Don't overlook where you do all your writing and editing work. If you work at home as a writer, you can deduct a portion of your house or apartment that is dedicated to your work. If you have a dedicated space where you work as a writer and do nothing else in that space, either a room or a portion of a room, that space is deductible. If you have a home with five rooms and one is your office, then one-fifth of your mortgage or rent is deductible (but you can't use this space also as a guest room or sewing room, for example; it must be dedicated to writing). If you live in three rooms and use half of the dining room as an office, you can deduct one-sixth of your rent or mortgage if the space is dedicated to your work. The same percentage can be deducted for utilities, home owner's or renter's insurance, water, and real estate taxes (though you can sometimes take those off entirely in other ways).

The key to making all this work is receipts. You have to keep track of everything you earn and everything you spend. I have a ledger and a file box for each calendar year. I save and file all receipts, if they have anything to do with my business. At the end of the year, I fill out the ledger. When it comes time to do the taxes, I have totals for the year and just plug them into Turbo Tax.

I think it is important for anyone who is serious about writing to keep track of income and expenses, to track their work as a business and not a hobby. The IRS will consider your writing a hobby if you are not conscientious about this aspect of your life. You don't have to make a lot of money, but you do have to be professional in how you manage your financial affairs.

Tags: writing, editing, IRS, business of writing


Jacqueline Seewald said...

Hi, Susan,

Excellent advice for professional writers! I don't earn a lot of money from my writing either. However, I think it's important to keep a notebook for each year of earned income vs. expenses. This is for tax purposes but also for my own information. I find it very helpful.

Susan Oleksiw said...

I didn't mention how important it is to be able to look back and see how you've done over the years. That's an important point, so thanks for bringing it up.

Kaye George said...

I'm surprised at how many writers have tax professionals tell them they have a limited number of years they can claim expenses as a writer before showing a profit (or even income). I used to be a tax preparer and have always been a writer, full time for the last 12 years. No profit yet!

I agree, records are necessary!

Susan Oleksiw said...

Kaye, I haven't heard that bit of advice. My husband and I have spent a fair amount of time reading IRS information booklets, so I feel pretty confident in what I claim. But I have learned that many professionals only know one area within their field, and writing may one area where people need more training.

Thanks for the comment, and I hope your income increases.

Kaye George said...

I can never find the pub when I need it, but if you're a writer, a model, and something else (artist? musician?) you have many, many years to claim expenses before your profession gets declared a hobby. Most other categories are allowed only 3 years, or must turn a profit 3 out of 5 years. I did find this reference:

Kaye George said...

I found another cite that gives IRS sections and some nice examples.

Kaye George said...

And that site is--

Anonymous said...

"The library you build as a reference resource is also deductible, though the IRS has special guidelines for books."

What special guidelines are there for buying books for a reference library, or even for buying books in your field to keep current with what is being published?

Kaye George said...

For many years I've been deducting almost all the books I buy. They're either writing craft books or mysteries that I read as part of my education.

Jacqueline Seewald said...

I never thought of that! Thanks for the suggestion.

BD Tharp said...

Great post. Thanks for sharing this with us.

Kathy Gregory said...

You clearly know how to handle your taxes. It is true that organizing and planning ahead of filing your tax is a smart move in order to avoid having complications with the paperwork. Keeping a ledger would help you keep track of all your transactions, though a virtual compilation would also be pretty helpful. You can try using programs such as Microsoft Excel for that. And I agree that receipts are important, as these will tell you where your money is going and how much money you earn, especially for small business and individuals.

Wystan  Dale said...

I agree with Kathy here. Getting organized can really help you prepare to file for tax. Some people tend to do all the paper work when the deadline is close, and end up having trouble because they don’t have all the papers they need. Anyway, the deadline for filing tax is near. If people want to avoid the trouble of not having the proper documents for the filing, it would be best to prepare all of them right away.

Unknown said...

The temptation to procrastinate is very strong. I would know; I do it all the time. But when it comes to taxes, like everything else, procrastinating only spells trouble. It’s easy to miss important details, especially when you’re in a rush. Not only will you miss filing this here paper and that form, you’re also most likely to make mistakes when it comes to reporting your tax returns.

Harley Mcgowan

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