I learned of yet another writer whose tax preparer gave her wrong information! It's a shame that ignorance of what taxes mean to writers is so widespread.
So, once again (sorry it's a little late this year), I'm posting to inform all of you writers that you CAN deduct expenses--and for many, many years. Below is my standard post and at the bottom is a link to changes for this year.
I put the topic in caps because this is important! You don’t want to miss out on what is, as Lucy says, “only” your “fair share”.
Some writers, even a lot of tax accountants, think the IRS hobby rule applies to writers. It doesn’t have to, if you’re serious about your writing.
To begin with, take a look at this IRS publication: http://www.irs.gov/irs/article/0,,id=186056,00.html
If you’re starting out as a full-time writer, you don’t have to declare income 3 of the last 5 years if you satisfy some requirements.
The important points from this article are, for you, as an unpublished writer (not making any money), or even a published one whose income doesn't cover expenses:
**Does the time and effort put into the activity indicate an intention to make a profit?
**If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
**Do you have the knowledge needed to carry on the activity as a successful business?
**Do you expect to make a profit in the future from the appreciation of assets used in the activity?
You can report losses on a Schedule C for quite a few years before the IRS will take a look at you. See this article, which elaborates on the above:
http://taxsolutionsforwriters.com/2014/02/16/a-special-provision-for-writers-in-the-tax-law/
It’s important to be keeping records of submissions, classes, time spent, and to conduct writing as a business in every way you can. Also, of course, keep track of what you can deduct. Write down your mileage every year on January 1st!
This article goes into exquisite detail: http://www.eclectics.com/articles/taxes.html
This one includes some forms to help you keep track if you don’t already have some that you like: http://www.artstaxinfo.com/writers.shtml
AND, changes for this year: https://www.irs.gov/uac/newsroom/2016-tax-changes
The main points for me are that the filing date is 4/18 and the mileage is 54 cents/mile.
I hope this helps. Don’t lose out on loss deductions that you’re entitled to. And may you someday be declaring a profit! I made my first profit after filing as a writer for 12 years. A whole 3 figures.
I hope this helps. Don’t lose out on loss deductions that you’re entitled to. And may you someday be declaring a profit! I made my first profit after filing as a writer for 12 years. A whole 3 figures.
Image from static.irs.com
I "broke even" for several years because expenses exceeded income. I had to roll each year's loss into subsequent years. When I finally had a really good year, I was able to apply all those rolled-over losses against that year's income. Of course, when the next year was also really good, I didn't have enough expenses to balance against the income and had failed to pay enough quarterly estimated taxes, so I was dinged with a larger tax liability than I anticipated.
ReplyDeleteMy tip: If your income spikes, ensure that you pay sufficient quarterly estimated taxes (or have extra taken out of your day job paychecks)!
Hey everyone, listen to Michael. He's been in this biz, successfully, for a long time.
ReplyDeleteI agree that quarterly payments are a good idea. I never rolled over my losses. That seemed too complicated! I've never been out of balance more than 5-6K, but that helps a lot.
I look for this every year, just to remind myself that I'm "legal." Thanks, Kaye. Watch for a referral to this post on tomorrow's Lyrical Pens.com.
ReplyDeleteMarilyn (aka "cj")
I asked my accountant about quarterly's this year. I made almost $100! And had over $300 in deductions. She said not to worry until it gets closer to $500 yearly income. I hope to go over $100 this year.
ReplyDeleteThanks, cj! I'm glad I decided to post this, then.
ReplyDeleteApril, it's amazing, isn't it? We're just rolling in dough.
Kaye, the rolled-over expense was because I claim a home office. As it was explained to me--and I hope what I was told was accurate!--home office expense can not be used to generate a loss. So, I could claim home office expenses until it zeroed out my income. The additional home office expense each year had to be rolled forward.
ReplyDeleteWhat I will learn this year is what impact last year's sale of my home will have on my writing business. I might owe capital gains tax on the portion of my home used as an office. There appears to be conflicting information on this point, so my accountant is supposed to be investigating the regulations. (While the firm does accounting for many businesses, I may be the first one with a home office to sell the home in which the home office was located.)
Yes, I think the home office is the trickiest part. I've debated it, but decided to take the simplified deduction when it became available. I've used that since then. I do use the home office deduction as part of a net loss when I have a loss (I alternate, it seems, between profit and loss depending on how many conferences I've attended).
ReplyDeleteI will say I've never heard that any deduction couldn't be used for a net loss. It's never gotten me flagged. I find indications that you're right, though. I wonder if my software reduces the amount for me. I'll have to keep that in mind!
Thanks once again for this information. The link to writer interrupted no longer works.
ReplyDeleteThanks, Helen. I KNEW I should have tested all of them. I'll take it off.
ReplyDeleteVery resourceful post but some of the sites you have listed are down or not accessible
ReplyDeleteAccountants in Barking
Thanks Kaye! I filled my expenses again this year thanks to the advice you gave me in A
ReplyDeleteNashville bar a couple of years ago. Didn't remember that I could do it longer than two years. I am
Hoping for a profit this year, aren't we all but glad to get the bigger refund again next year if it doesn't
happen. Mary
Access Accountants, yes one of the links was broken when I posted this. I apologize for not rechecking all of them. If you refresh the page, you should get the reloaded version with good links.
ReplyDeleteMary, I didn't remember we talked about that, but DO remember meeting you at Killer Nashville.
Certain expenses don't seem to fall into one of the Schedule C categories mentioned on Turbo Tax. For instance, where do you claim purchase of story research material?
ReplyDeletePersonally, I put research material (and I have to use a lot of it with my Neanderthal books) under 22, professional supplies and equipment. I put writing books and other mysteries that I read there. A lot of things can go under that category. Just so you get it on there and use it!
ReplyDeleteThanks for sharing this information, Kaye. Much appreciated.
ReplyDeleteYou're welcome! Glad you can use it.
ReplyDelete