Ah, it’s that time of year. The time when our thoughts turn to new beginnings, new goals, and …taxes! If you’re new to the business of writing, and if you’re trying to make the transition from hobby to business or from part-time to full-time writing, you’ll soon find–if you haven’t already–that there’s lots to learn when it comes to handling your business expenses and making the most out of your tax deductions. And, if you’re a veteran writer who’s been in business for a while, read on anyway…you might just pick up some helpful nuggets, or perhaps you can add your own two cents worth to help others. I’d love to hear about any deductions I may’ve missed. (I’m sure there’ll be some, as this is the short list!)
Before launching into specific deductions, I want to encourage any freelance writer to be sure to always keep your business expenses and revenues separated (preferably in a separate bank account) from your personal expenses and revenues. Not only does it make the accounting work much easier in the long run, but it will help you to better gauge on a regular basis how your business is doing.
Also, keep in mind that the IRS is seriously cracking down on small businesses and sole proprietorships right now (let’s face it, they need the money!), so they are looking for any reason you give them to come and audit you. Don’t give them any. Keep detailed records of every transaction, or hire someone who can do that for you. It could save you big down the road.
As mentioned, this is the short list of possible deductions if you are a freelance writer, working as a 1099:
~ Office space: You are allowed to deduct a portion of your mortgage expense (equal to the percentage of space your office occupies in your home) for your office. The only caveat here is that your office must be a dedicated space. So, if your office also functions as your family’s TV room, or you share the space with your kitchen, then you can’t deduct it.
~ Office supplies: From paper clips to computers, any and all office supplies that you need for your business are fully deductible. Hold onto all of your receipts! Those paper clip expenses add up over the course of a year!
~ Mileage: Anytime you have to travel to meet with clients, publishers, to go to writers’ conferences or workshops, to conduct research at the library, or even to purchase those supplies I just mentioned, keep track of your mileage. It is also deductible. Purchase a mileage log and keep it in your car. You’ll use it more than you think.
~ Entertainment: If you engage in working lunches with co-authors or editors, if you take an editor out to dinner as a thank-you for all his hard work on your book, or even if you use a round of golf to pitch an editor on your latest book (Of course, you may lose your editor in the process if you spend 18 holes pitching her!), these are all legitimate business, and therefore, deductible expenses. Keep all of your receipts, and write the purpose for the event on the receipt so you don’t forget. And, don’t go overboard with these, or red flags will fly with Uncle Sam.
~ Conferences/Workshops: All expenses associated with going to writers’ conferences, seminars, workshops, or other events used to further your career or business are considered deductible: meals to and from and while you’re there, travel to and from, rental car expenses, lodging, etc.
~ Educational materials: Anytime you purchase books or CDs on writing (or something similar), reference materials, subscriptions to online databases, magazines, or anything else you need to conduct your business and aid in your writing is deductible.
One more thing to note is that the IRS makes a distinction between a hobby and a business. If you’re writing is not profitable after a certain period of time (the last I checked it was three years, but this may’ve changed), it is considered a hobby not a business and you will not be able to use your deductions. Once it does become profitable, however, you may start deducting again.