As we’ve discussed at length, writing is about more than just writing. There’s a lot of grueling administrative work that goes into it. Taxes are a prime example. As H&R Block ads pop up on every corner, it’s a good time to take a look at some things you need to know to be prepared to file taxes as a writer. Whether you are exclusively focused on writing the next life-altering prose, you’re a freelance article author, a blogger, or self-publishing on the regular, there may be some information relevant to you.
Before we get into the list, I want to preface all of this by saying I highly recommend at least consulting with a tax professional before filing. Whether you are a hobbyist or professional, this adds a complicated layer to your taxes which are complicated beasts in the first place. A lot of how you define your status, what you deduct, and how you deduct it depends on self-reporting and so the IRS tends to have a more watchful eye over these returns than the average 1040. I AM NOT A TAX PROFESSIONAL. I use a tax professional. Honestly, I get overwhelmed just collecting stuff to take to my accountant. I should not be considered a financial wizard or final word on your filings.
Now that we’ve gotten the disclaimer out of the way, let’s move onto the basics:
- Know your filing status – The IRS allows writers to file as SELF-EMPLOYED or HOBBYISTS. There is no clear defining line between the two. It is up to you to report. If you define yourself as self-employed, you have to pay self-employment tax as well as the appropriate tax on income, but you can take a loss on income. If you file as a hobbyist, you are not responsible for self-employment tax, but you cannot take a loss on income. A good rule of thumb for distinguishing the two is to look at your tax statements. Is more than 50% of your income documented on W2s? You can probably file hobby. Is more than 50% of your income on 1099s or self-reported? You are probably self-employed.
- Material expenses are deductible – Paper, software, platform, printing, etc. expenses are deductible. If you are unsure about an expense, ask yourself if you would encounter this expense if not for writing. If the answer is yes, not deductible. If the answer is no, then deduct it.
- Big ticket items are deductible but highly scrutinized – If you had to buy a new computer to be able to write, that is deductible. However, if you bought a new computer to be able to write, surf social media, shop Amazon, and for your kids to do homework, it is not tax deductible. If you are unsure whether a big ticket item is deduction worthy, air on the side of caution, especially in the beginning. More on this a little later.
- Conferences, classes, and seminars count as continuing education – Professionals in any arena are allowed and expected to participate in continuing education. When you’re in the corporate world, your company usually foots the bill on this in the hopes that your new knowledge will bring them money. When you’re the one footing the bill, you get to take the tax relief. Everything associated with the continuing education can be written off. Registration, lodgings, travel, etc.
- Research is deductible – Whether you’re registering with a database to search archives or traveling across the globe to immerse yourself in a culture, that can be written off as a business expense. Again, use common sense and caution. You are going to be in a world of hurt if you try to write off your family beach trip as a business expense unless you came out the other side with a publishable manuscript about families vacationing in Florida.
- Use caution with the home office – Home office expenses are totally valid for deduction, but there are a lot of rules surrounding it. While I know that a couch and coffee table is a totally viable work environment, the IRS does not agree. To meet the criteria for a deduction, your home office has to be a dedicated space used EXCLUSIVELY for business purposes, and the things therein should be exclusively related to business. If your office doubles as your kitchen table or the printer therein is used by the entire family, you do not qualify for the deduction. If you are going to take this deduction, be stringent about its use.
- Be diligent with receipts – “Show me the receipts” is not just a phrase in reality television, it’s the first thing the IRS will ask when they show up at your door. Every time you make a transaction related to work, label the receipt and keep it in your files. Stopped for gas on the way to AWP? Write in on the receipt. Traveled to New York to meet with your agent? Label it on the receipt. Print the receipt, label the receipt with its purpose and if possible the work it is related to, and keep that receipt for at least eight years. The IRS can go back three full calendar years from the audit year and they reserve the right to audit for five calendar years. They say they “usually” won’t go back more than six years, but they reserve the right to if they deem it necessary. When I was a kid, my dad kept receipts everywhere. He never threw anything away. Hand to God, when I cleaned out his house after his passing, there were tax returns from 1973. Drove me bonkers. Now that I’m self-employed, I totally get it. Receipts are your most important line of defense if the IRS ever comes knocking.
- Understand that you are expected to make money – The IRS understands that starting a business, such as becoming a writer, can take a while to produce profit, but they expect you to make money eventually. If you file a loss, especially a non-improving loss, for three straight years, you are more likely to ping on their radar. Does it mean that you cannot still file the loss? Absolutely not. The truth is the truth, but if you’re playing fast and loose with deductions to skew the vision of your earnings, you may be setting yourself for trouble. In year one, it is acceptable and even expected that you may take a loss from shelling out for the big ticket items previously discussed. If you’re in year three and still writing off computers, “research” vacations, and printers with no earnings to show for it, you’re going to draw attention.
- You need a competent tax professional – While hobbyist and self-employment filings are more cumbersome and complicated to us lay people, they should be easy for a competent, experienced tax professional. EXPERIENCED and COMPETENT being the key words. If you are working with someone and you are not 100% confident in what they are telling you, you need to find someone else. Stupidity on the part of your tax preparer DOES NOT absolve you from tax liability. Unlike criminal law, intent is not required for conviction of wrong doing. You will still be responsible for any past-due taxes and fines that result in ill prepared taxes. I have had “pros” miss state filings that I had due as well as miscalculate my taxes owed (payments from other states taxed at their level instead of my operating state). It happens. No one in any field is perfect. I get that, but if any alarm bells ping for you, if you are not 100% confident, go to someone else. Go to someone that can make you feel confident.
- Be honest – It’s easy and maybe tempting to toy with the numbers when you’re the one in charge of reporting…don’t. It’s 100% not worth it. You start down that road and suddenly you have to worry every time an official letter comes in the mail, you open yourself up to fines and interest, and you put yourself at risk of FEDERAL CRIMES. Plus, you know, telling the truth is the right thing to do and all. I know that this all seems very worst-case scenario, and it is, but it’s also very real. People get audited everyday, and while you’re likely not going to jail for misfiling a year or two, you may have to pay a lot more money than you saved in the first place. File accurately because it’s not worth the headache of doing anything else.
Any other advice is welcomed and encouraged. Have a tax horror story? I’d love to hear it. Until then, best of luck with this year! May the tax code be ever in your favor!