Wednesday, January 1, 2014

Which Tax Deductions Apply to You as a Writer? By Danica Favorite

I don't want to depress you on this first day of the new year, but if you're like me, you're already thinking about all those receipts and spending records from the past twelve months. Today, I'm rerunning a popular post from 2013 by Danica Favorite. Hopefully, the information helps you as you prepare for the upcoming tax time. -- Sandy


Danica - 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?

~~~

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.

11 comments:

  1. A tip if you bought a new computer or office furniture in 2013. Look at using Section 79 expensing to claim all your depreciation at once. I write tax and other financial advice in my non-author life. :)

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    1. Thanks for the tip, Jean. It's good to have another expert out there to call on. ;) Is there a blog we can go to for this advice?

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  2. I always forget to write down mileage! Our accountant suggested keeping a notebook in the car to keep the log handy.

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  3. What about those of us not published, are we allowed to take deductions? If so, for how long? I know it can take upwards of 7 years before we're published.

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    1. This is a great question. There's the three years out of five rule, so I try not to deduct any more than I've earned.


      Anyone else able to give advice on this?

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  4. Thanks for the reminders! Very helpful. Like Angie, I always forget about mileage, and I never even thought of internet - duh!

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    1. There are so many possible deductions like Internet and computer, etc., but if they're not strictly used for writing, it can get sticky.

      Thanks, Naomi.

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  5. Thanks for the post Danica. What about the cost of mailing prizes to readers and the actual cost of the books or other prizes they win from your website or facebook page? And also, what if you didn't keep a record from the post office of shipping costs?

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  6. Jean, that's another great tip!! Thanks for sharing.

    Anonymous, that's actually a more complicated answer than I can give here. Basically, the IRS has a series of tests you can use to determine if you have a business or a hobby. Even if you're not making any money, as long as you meet the tests for being a business, you can deduct your expenses as an unpublished author.

    Thanks for stopping by Naomi! Glad I gave you something to think about.

    Belle, YES!! Those are absolutely deductible. If you don't keep your receipts, then START! You can also go back through your bank statements and use those as a starting off point. My bank, for example, has images of the canceled check available online. Or you can look at the statement from your credit card. The IRS isn't always happy about that as evidence, but they do often accept it. You won't need to provide the proof unless you're audited, so it may be worth tracking down those statements.

    Re: mileage. If you forget, don't panic!! This is where I love mapquest. :) Look it up.

    As always, be sure to check with your tax advisor regarding your specific situation.



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  7. Business clothes? You mean I can't deduct my pj's? ;)

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