Wednesday, March 27, 2013

Which Tax Deductions Apply to You as a Writer?


It's tax season again and, if you're like me, the procedure boggles the mind. To help you struggle through the task of giving the IRS their due, I asked Danica Favorite the following questions about deductions:

"For a writer doing their own taxes (as opposed to having an accountant), what are some legitimate writing deductions we might miss? Are there deductions we might think are legitimate but aren't?" - Sandy




I'm so glad Sandy asked this question, because I think it's a great question. And I think my answers might surprise some people. There are a lot of legitimate deductions a writer can take for his or her writing business. But there are also a few deductions writers take that aren't deductible. I'm going to share a few of the most common.

The first thing I want to address is what you CAN deduct. The IRS standard for what is deductible for your business is what is REASONABLE and NECESSARY for your business. So what's reasonable and necessary? That's something the IRS does not define, but as a business owner deducting that expense, you should be prepared to explain how it's necessary for your business as well as a standard business practice among writers.

Here are a few suggested items you might be able to deduct:

·         Ink, paper, mailing supplies, and other office expenses.
·         Research materials
·         Conferences and other writing related education
·         Professional memberships
·         Advertising
·         Transportation Expenses
·         Meals and Entertainment
·         Business gifts
·         Legal and Professional Service
·         Other writing tools
·         Utilities
·         Computers and other equipment. NOTE! These should be depreciated and only in the proportion of business use. Care should be taken to determine the amount, if any, personal use can be attributed to these items

One thing I'd like to point out as a commonly missed deduction are your transporation expenses. When you take trips to the post office to mail things related to your writing business, or you're going to meet another writer for critique, be sure to track your mileage!

As far as deductions that people think are legitimate but aren't, I'm going to give the most commonly abused deduction by writers (at least in my experience). Business clothes. Unfortunately, the IRS has very specifically stated that the business clothes you're buying to wear to conferences are not deductible. A lot of writers try to claim it, but it's not legitimate. I know some writers have said, “but I claim business clothes every year.” But there's a problem with that logic. If the IRS chooses to audit those returns, that deduction will be disallowed, and the writer will be responsible for paying penalties and interest on the additional tax levied based on that mistaken deduction. Remember- just because you've deducted something, doesn't mean that it's a legitimate deduction. Even if you've gotten away with it in the past, the IRS has the right to take a look at previous years' returns and change them.

Another deduction mistake is taking a deduction for the entire cost of an item that is used for both personal and business expenses. For example, many writers want to deduct the cost of their Internet service. This is a legitimate business expense. However, if you have the Internet service in your home, and the rest of your family uses it, then part of it is personal use. So you need to apportion the amount of business use and only deduct that amount on your tax return.

As you can see, there are a number of great deductions you can take for your writing business. Just remember that they need to be reasonable and necessary for your writing business. Keep in mind that you need to only deduct the business portion of your expenses, and be cautious about deducting anything that the IRS doesn't allow.

What business deductions do you take for your writing business? Are there any that you're thinking of adjusting?

 
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Danica Favorite works as an online moderator for a major publisher where she connects readers and writers with new fiction releases. Having spent time in the corporate world teaching tax law and preparing taxes, she much prefers fiction to numbers. You can connect with her at www.danicafavorite.com.

10 comments:

  1. Wow, I hadn't even thought of deducting a portion of the Internet service. And I really need to keep up with mileage. Our accountant tells me that every year. I guess I need to keep a tiny notebook in the car.

    Thanks, Danica, for this timely info!

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    1. Angie, if you keep a log showing how much time you spend on the Internet for your writing business, it's really easy to pro-rate the amount of personal versus business time.

      And yes! Get a tiny notebook for your car.

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    2. Great idea! I wonder if there's an app for that? :)

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  2. I have a VERY GOOD accountant...my dad! lol. He keeps me in line, and business clothes would never have made it by him. Not that I thought about it. ha! Thanks for the tips, Danica!

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    Replies
    1. Go Dora's Dad! I'm glad you have someone like him in your corner. :)

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  3. Love this list! Very helpful. Just tweeted it. Thanks.
    I'm wondering how many years I can do this without showing a profit. How long will I have before my writing is viewed as a "hobby." Ha!
    Michelle (Saint-Germain) Weidenbenner
    Random Writing Rants

    ReplyDelete
    Replies
    1. Thanks for tweeting it, Michelle.

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    2. Thanks for the Tweet!

      Michelle, I wish I had an easy definitive answer for you. The real answer is very complicated, and I could teach an entire class on just that.

      Here is the link to the IRS answer:
      http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

      The real question is whether or not you are treating your writing business as a business. Do you have a business plan, and are you making progress toward those goals? If you can demonstrate how and why your writing business is a business using the criteria set out on the IRS page I gave you, you can claim it for quite some time.

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  4. One thing that I always want to deduct, but never have, is my home office. Isn't there some IRS guidelines for deducting use of a home office, if that room in your house is used mainly for your business? Kind of like the use of your internet at home.

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    Replies
    1. Hi Chris, for some reason, my reply never came through so I'm sending it again, and hopefully it doesn't end up a double.

      To qualify for a deduction, your home office must be used regularly and exclusively for your business. So if it has another purpose besides being your office, you can't use it.

      Here's http://www.irs.gov/uac/Work-From-Home%3F-Consider-the-Home-Office-Deductionmore information from the IRS:

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