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Wednesday, March 3, 2010

Tax Writeoffs For Writers

As tax season creeps up its important for writers to remember that many of our costs can be deducted as expenses. There are a lot of stipulations and many of them vary depending on what state you live in. Last year I talked to a tax consultant and got the low down on what was acceptable in my state. He told me I can claim expenses for two years as self-employed but if I haven't profited from my writing by the third year I have to stop claiming it as a type of self-employment and change to claiming it as a hobby. Thankfully, I'm only working on my second year of claiming my writing expenses and I'm really hoping to sell my series by the end of this year and make that three year profit deadline!

There are quite a few things that count as expenses. Think of everything you use for your writing; paper, ink, pencils, pens, a new computer or printer maybe. All those things are deductible. Once you start keeping track of those types of expenses you'll be surprised how quickly they add up. I have a credit card I use only for business (writing) related expenses. If you can do this I highly recommend it. My card sends me a year end summary that breaks everything down into categories. It saves me a lot of work!

You can also claim your office space if you use it exclusively for your writing. Take the amount of space your office takes up and find the percentage of your home that it is. Let's say you have an 1100 square foot apartment and there is an 8x10 room you use exclusively for your writing (the exclusive part is really important). In that case you could write off 13.75% of your mortgage, utilities, home insurance, and internet (if you use internet for your writing-networking counts).

Check out this great guest post on Chuck Sambuchino's blog (of Writer's Digest) about tax tips: http://www.guidetoliteraryagents.com/blog/Tax+Tips+For+Writers.aspx

12 comments:

  1. What a great post, Heather! I really like that idea of having a credit card dedicated to writing expenses. In your state can you deduct travel expenses for workshops and seminars, too?

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  2. I didn't know we could automatically write off some of our stuff on taxes! I thought we had to have like an actually business type of thing with all that paper work, etc. That is awesome! I am going to do some research about my state right now!

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  3. You can Linda! The catch is you can only claim for two years before you have to show a profit. Fingers crossed that I meet that criteria this year!

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  4. It depends on the state Harley but most let you write off your expenses as long as writer is more than a hobby. Gotta love that!

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  5. GREAT information, especially about having a seperate credit card. Thank you for this! :)

    -Mercedes

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  6. Heather, this is great! Can we write off massage therapy for our aching backs? :) The credit card is a great idea! Karlene

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  7. I just want to say that what you were told by your tax consultant is essentially incorrect, and you should get a second opinion.

    As a first note, your state does not set the rules for whether you can deduct expenses for federal purposes, and most states--I only say "most" because I don't know the rules for all states, but I know of no exceptions--follow federal rules.

    Second, the rule is NOT that you can deduct two years of expenses without showing a profit. You can't always deduct all expenses for an activity for two years, and you certainly CAN deduct expenses for a business that takes longer than two years to get off the ground.

    The rule is actually this: You can deduct all expenses for a business that you are conducting with the expectation of making a profit, but you cannot deduct expenses associated with a hobby (except to offset income).

    The IRS uses a rule of thumb to figure out if you are conducting a hobby or running a business: If your business reports a net profit in 3 out of 5 years, it is presumed to be an activity that you are conducting with the expectation of making a profit, rather than a hobby.

    But that is only a presumption, which you can overcome with evidence that you have conducted yourself in a business-like manner, with the expectation that you will eventually make a profit.

    If you keep copies of your correspondence with editors and agents, records of when you work, if you are writing and submitting work constantly, and your goal is to eventually make money as a writer, your expenses are deductible, every year, for as many years as it takes to sell. Now, are you more likely to get audited? Yes, you are. But if you have records showing what you did every year, and showing that you operate in a businesslike manner, and if you can provide proof that this is an area where most people take more than three years to make a profit, that will not stop you from being able to deduct expenses. Most writers will not make a profit in the first three years of their business. That's a fact of life, and the IRS isn't going to punish them for it.

    Please talk to a tax professional who has dealt with writers in the past, as this one appears to have given you advice that isn't tailored to maximize your tax savings.

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  8. Hi Courtney, thanks for all that great information. Perhaps I didn't say it clearly enough though because the rule you stated is exactly what my tax consultant said. He just advised me that if I wasn't showing a profit after two years I was much more likely to be audited. Sorry if I muddled that up! And you're absolutely right, keep all those correspondences and receipts! I didn't start claiming my expenses until I got an agent and felt that I was going to profit, just to be on the safe side. Others have claimed prior to getting an agent though so don't let that deter you! You're right though, if a writer is going to claim expenses its best to use a reputable tax company.

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  9. LOL! Unfortunately no Karlene, you can't write off massage therapy. Boy do I wish! There's quite a bit you can't write off like that. A good tax consultant can fill you in on all the details. Like a trip for research, say to a tropical place, nope can't write it off. If only we could!

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  10. You're very welcome Mercedes! I highly recommend the credit card just for writing expenses. It made things a lot easier on me this tax season. My company even breaks down travel, food, and supplies in a year end summary. Love it!

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  11. You can also claim any snail mail submissions you make (just keep reciepts, I believe any conferences you attend can be claimed as well).

    I agree with you on the agent thing. I think it wise not to claim anything until you have an agent unless of course you freelance.

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  12. Great point about snail mail submissions Lindsey! I completely forgot about that. You're right, conferences and workshops can be claimed. Good point on the freelancing too!

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