Saturday, December 1, 2007

10 Tax-saving Tips for Writers

Attention writers.

All you freelancers, whether your income skyrockets in the 100s of thousands of dollars or you’re closer to $500 per year, Uncle Sam treats you all the same.

That’s right, amount of income earned by a writer carries no weight with the IRS. You all must follow the same rules. The most horrendous audit I've ever handled was that of an established poet who earned less than $5,000 that year.

I've put together 10 time-and-tax-saving tips on how to simplify complex IRS rules to fit your writing style. All stem from questions you have asked me or areas where I know you need help. A while back I presented a similar set of tips to designers -- Designers Dozen: Tax Saving Tips for the Graphic Artist .

1. Use two offices. Forget the old husband’s tale that home office or studio is an audit red flag. The IRS has lightened up on this. Even if you work out of two or three places, if used exclusively for your work they are all legitimate deductions. Yes, both your home office and the spare room at your country place where you do your three-hour morning blogging routine every weekend are deductible business expenses.

2. Work at home to increase your business transportation deduction. If you do most of your research and writing at a local Internet cafĂ© or college library or rented office you may still deduct costs for the area of your home used exclusively and regularly for your business, no matter how small the area. And by having two work places you’ll increase your deduction for auto use or public transportation costs.

Here’s why: The IRS does not allow a deduction for commuting from home to work and back. But it does allow a deduction for getting from one workplace to another. If you work in your home office and then drive to your other workplace – the library -- you are now driving “from one workplace to another.” You've increased your business miles and the amount of your auto deduction, or made your subway trip a business expense.

3. Careful, no office sharing allowed. Keep in mind the all-important IRS exclusive use rule: that your office must be yours and yours only. If you’re the writer for Clyde Client and your spouse handles the graphic design side of Clyde’s website and both you and your spouse use the same office – sorry, no home office deduction.

The way around that: make one spouse the employee of the other. By the way – there are a whole lot more benefits to hiring your spouse.

4. Hire your spouse. Even if your honey only helps you out with printer jams or errand running or fact checking, pay him for it. Putting him on your payroll opens up a vast array of deductions. You can provide generous employee benefits and deduct the costs of those benefits from your writing income. What kind of benefits? Well, for one thing, you can give him a medical plan that covers his family – that’s you and the kids. That would make your doctor bill a deductible business expense.

5. The more broadly defined your business the more deductions you can take. Being a sports writer limits your deductions. Same with calling yourself a technical writer. Yet we know if the money were there you’d write about pretty much anything.

Maybe you can position yourself as a generalist writer; in any case, describe your field of writing as broadly as you comfortably can. Do you sell ads on your blog? Do you sell a copywriting course on your website? Do you write for blogs and edit press releases for local businesses, all while working on your book? Perhaps your true business profession is a writing and marketing consultant rather than a writer.

Whatever your profession, claim all the income --- every dime. Consider as a possible business expense everything you do that makes you better at making money.

6. Why do you watch TV, rent DVDs, see a movie? If it’s just for fun, no tax deduction. However, if seeing films is vital to your own screenwriting or your novel in progress then claim a portion of the costs as a tax deduction. Or, has the literary void on network TV forced you to get cable? Well then, part of your monthly cable cost is a business deduction. And remember, the business use portion of the cost of your TV and DVD player is also a business expense.

7. Are you allowed to deduct a gift basket of fruit to Grandma? Of course you are -- if Gram has some connection to your business. Did she show you how to hook up your scanner? Make curtains for your office?

You’re an indie business and even though you may have a personal relationship with someone, that does not rule out also having a business relationship. This is particularly pertinent in gift-giving. Of course, if you bought your client a basket of fruit as a birthday present you would treat it as a business gift deduction. But what about the friends with whom you have a business connection? If dinner at a friend’s house was planned so that she could help you with your query letter or book proposal, then the chocolate you arrived with is a business gift.

8. Deduct your laundry and dry-cleaning. Spill ink or red wine on your white silk blouse while attending an awards event? Dry cleaning and laundry while on a business trip are deductible expenses. You may also deduct the costs of the first dry cleaning bill after you return home. But don’t get too creative and save all your winter’s dirty clothes for cleaning the day after you return from a 3-day writers’ workshop.

9. Just starting out? Twenty-five query letters out and still no magazine said yes. That’s a bummer, but even if you haven’t yet made your first dollar as a writer you may still deduct your expenses. As long as your goal is to make money, you’re in business – whether you actually make any money or not.

10. Discuss these ideas with your tax pro before incorporating them into your business. That’s the most important tip of all. If your tax pro isn't aware of them … time to get a new pro!

10 comments:

Michele Tune said...

Wow, what awesome tips! I think when most people think of venture down the writer's path, they don't realize there's "business" other than dealing with editors, sending queries, etc. What a valuable resource you have here!

*I followed over from Freelance Parent, and I know I'll be back!*

Michele L. Tune
Writing the Cyber Highway

June Walker said...

Thank you, Michele.

Writers need all the accurate tax & business advice they can get! Please tell your friends and colleagues.

June

jgordon0508 said...

June, Please note to your Indie clients that according to IRS Pub 463 you may make a gift of any size to a client but you are only allowed a $25 deduction per client

June Walker said...

J Gordon,

That is correct. And it has been $25 since I have been in the tax business -- more than a couple decades! I doubt it will change in soon.

The point of the gift basket to grandma tip is that every indie needs to look at his or her business relationships. Make sure you don't exclude a business expense because it involved someone with whom you also have a pesonal relationship.

Thanks for your comment!

Best,
June

Jim B. said...

June,

Thank you for the tips. I'm an "independent scholar": I write academic reviews and essays for little or no money, but I have no affiliation with an academic institution. The writing, of course, is "on the side" of my day job in the corporate world. What strategies can I use?

June Walker said...

Dear Jim B,

As long as the goal of your writing "on the side" is to make money then you are an indie in business. That means that pretty much everything you spend to make you better at your writing business is a business expense.

Your trip to the library, part of your ISP costs, publications you buy, are typical expenses. Of course, you would need to allocate expenses if they were applicable to both your corporate work and your indie writing.

To learn more, you might start by reading some of the posts on "being self-employed" and also email a request to me for the complimentary expenses list. You can find both in the left margin of this blog.

Best,
June

Leif said...

Hi June,

Just found your site via a link on My Year of Getting Published.

A (admittedly desperate) follow-up query to the "no office sharing allowed" tip: what if you're sharing a home office with a freelancer roommate, not spouse? Still no go? Even if we 'work' out of different rooms? Is there no way to spin this?

Thanks!

Leif

Shawn said...

Just stumbled here and LOVE these tips ... I had often wondered about most of them. Thank you.

Here's a question: I write a personal blog that I often give as sample writing when applying for blogging jobs and other writing jobs related to motherhood issues. I'm assuming that all of my expenses for the blog, like domain hosting, can be considered an expense. Do you agree?

June Walker said...

Hello Shawn,

Oh yes! You may deduct any and all expenses related to your blog.

And, remember. If you buy a book on parenting and you review it on your blog --all for the purpose of furthering your writing career -- that book is a deductible publications expense.

I, too, was an indie with two kids. I wish you much success!
June

June Walker said...

Hi Leif,

Sorry my response took a while. Blame it on Christmas shopping and a lot of clients with year-end questions.

I'm not sure I understand your situaion. You say "sharing a home office with a freelancer roommate" and that you "work out of different rooms."

If you both work in the same room -- no deduction.

If you each use a different room, then yes, you may deduct your costs for that room.

Best,
June