5 Questions and Answers About Taxes

I’ve started working on our taxes. I think others must also be doing this since I’ve seen some questions posted on-line by writers regarding what they can or can’t deduct. I’m not a CPA (However, my main character in my P.J. Benson Mysteries is), but I’ve been filling out a Schedule C for years and have listened to various CPAs talk about taxes and writers, so I want to use this blog to mention a few things that writers should think about.

taxes

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1. Do you have to be published in order to file a Schedule C?

No. Being published is not a necessity.  How you answer the next question will tell you if you should file a Schedule C.

2. Is writing a business for you or a hobby?

Are you truly trying to make money as a writer or are you simply writing to please yourself and maybe leave stories for your family?

It doesn’t matter if your expenses exceed your income, or even if you didn’t earn any income, the important aspect of this question is: ARE YOU TRYING TO MAKE MONEY?

There’s also a psychological aspect to the question. How do you see yourself? Do you see yourself as a writer who is trying to make money from your writing? If so, and if you can prove (if necessary) that you are attempting to earn money from your writing, then it’s a business and you should be filing a Schedule C with your taxes.

3. How many years can you have a loss?

At one time I’d heard there was a ratio of years where you had to have a profit to years with a loss, but then several CPAs said that’s not true. You can constantly have a loss and file AS LONG AS YOU ARE ACTIVELY TRYING TO MAKE A PROFIT.

4. How do you prove you’re trying to make a profit?

You need to have records. Proof that you are trying to get published and trying to earn money from your writing. That means you need to keep copies of the query letters and manuscripts you send out and the responses you receive AND/OR create a spreadsheet that shows to whom you sent queries or manuscripts, when, and the response.

If you’re self-publishing, you need a record of when the file was uploaded and where. (You should get a W-9 from the publisher—Amazon, Smashwords, etc—at the end of the year.) If you’re published, you’ll receive the W-9 either from the publisher or your agent.

If you are selling copies of your self-published print books, you need a record of how many sold and at what price. (I always include where.) And don’t forget, if you are hand selling any of your books, most states require a sales tax that also needs to be reported at the end of the year.

5. What expenses can you take?

Anything that would be associated with the cost of selling your work. Look at a Schedule C form. (It’s a good idea to visit www.irs.gov/ ) Common expenses for writers are: Advertising (this includes ads, swag, giveaways), office supplies, commissions (if you have an agent), fees (I used to list my dues here but now I put it under Other expenses: Professional dues), Legal and professional services (you could list editing, if you have to hire an editor, or put that under Other expenses: editing), repairs and maintenance (computer repair would fall here), supplies (paper, ink cartridges, etc.), taxes and licenses (if you pay sales tax, list it here), travel (airline tickets, hotel costs), meals (you can only deduct 50% of your meal cost), and entertainment (if you are putting on a book launch party you can deduct all of the food/beverage expenses). Use OTHER EXPENSES for those items that might be questioned if dumped into the above areas. Some of my Other Expenses are: conference costs, professional dues, postage, magazines, books, online costs (which includes AOL and my website expenses). This year I’ll also be including my virtual assistant.

I’ve skipped over car and truck expenses. Mainly I list the miles to and from events I attend that are specifically to either increase sales (talks, autographings, etc.) or for education (writers’ meetings, conferences that I might drive to). This year you can deduct .56 per mile. Don’t include a trip to a book store if you also shopped for clothes, had lunch with a friend, and picked up some groceries. If ever questioned, you want to be able to show the IRS that the trip was specifically for promotion or research. I will include parking fees and tolls if they apply.

When I was writing more and had more books being published each year, I took every expense I could think of. Now that I’m writing less and have had fewer books for sale each year, I’ve cut back on listing some expenses. (I skip the little stuff.)

I have never taken a home office. Although I’ve heard the IRS isn’t looking at that as closely as it once did, it involves more computing (depreciation, percentage of house costs, etc.) than I want to bother with. On the other hand, if a writer uses one room for writing, and only for writing related work, then it’s a legitimate expense.

I hope, if you’ve been doing this for years, you skipped this blog. On the other hand, if you have had questions about what you can and cannot deduct, I hope this helps.

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14 Responses to 5 Questions and Answers About Taxes

  1. Diane Burton says:

    Very timely post, Maris. Usually around this time of year, RWA has a workshop on taxes (last year’s was free to members) for writers. Your advice about keeping records (letters to editors/agents, rejection letters, receipts, etc.) is really important. When in doubt, keep it. A trick I learned about business meals (critique, chapter meeting, etc.) is to write on the receipt who you were with & the purpose of the meeting. In the case of the chapter (or writers’ group) meeting, attaching the receipt to a copy of the minutes (which lists all present) proves you were there.

  2. Melissa Keir says:

    Maris, Great advice. I have a CPA that I use who is wonderful but I’d always done my own taxes up to owning my own publishing house. Now my taxes are more complicated.

    I also agree with Diane’s suggestion about the receipts. I write on all my receipts…from the stamps I bought to pay out the royalties to the paypal receipts. Everything is evidence.

  3. Excellent information and advice! I keep my receipts in a labeled notebook for tax purposes.

    • Maris SouleMaris Soule says:

      I have a file folder. Everything writing related for that year goes into the folder, starting on January 1 (if I have anything that day). Often there are things I don’t claim or use on Schedule C, but I consider them backup.

  4. Alyssa Alexander says:

    Great post, Maris. Lots of good information here! I attach receipts to minutes too, to prove I was there.

  5. Very informative post, Maris. I have a very savvy CPA who does my Schedule C, as well as our own taxes. She stays up on writers, artists, etc. as tax laws change often and I’m not her only “creative” client.

    • Maris SouleMaris Soule says:

      That’s great, Loralee. My CPA (the real one, not my character) does keep up with the tax laws, but as far as I know, I’m her only “creative” client, so I feel I need to also know what’s legit and what’s changed.

  6. Paula says:

    Thanks for posting. I have a spreadsheet that is a lifesaver and not just for tax purposes. If I couldn’t keep track of where everything is on my spreadsheet, I’d go nuts. I see there are things I haven’t been including that I can. This will be a help to me.

    • Maris SouleMaris Soule says:

      Paula, I can really see how a spreadsheet is a necessity for you with all of those short pieces you send out each month. I’d go craxy without something like that. With just one book a year, it’s not as difficult.

  7. Steve says:

    Thank you, good article.