Download our expense checklist for writers PDF Version
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Download our income worksheet for writers PDF Version
Download our income worksheet for writers Excel Worksheet Version
Download our 12 month expense worksheet for writers Excel Worksheet Version
By Peter Jason Riley, CPA
Taxes and administrating the business of writing are often last on the list of concerns for the professional writer. The artistic temperament simply does not interface well with the exacting rule-filled world of federal and state taxation. Writers tend to avoid the whole matter and consequently leave themselves vulnerable to bad advice and to overpaying taxes. The secret to overcoming this phobia is to develop an understanding of the mechanisms of the tax code and some simple, effective ways of complying with this onerous task. I often use the analogy that you may not need to know how to fix your car but it is helpful to know how it basically works. In so doing you will pay less in taxes and you will be less likely to fall prey to erroneous tax information and disreputable advisors.
Most free-lance writers are considered "self-employed" in regard to filing their taxes. In a legal and taxpaying sense this means that your "business" as a writer and you as an individual taxpayer are one and the same. There is no legal separation such as one would have in a corporation or other legal entity. The writer usually files a "Schedule C" as part of their regular 1040 income tax form (this is where you report all those 1099-MISC royalty income forms you received last year). The writer may also file form 8829 for the home office deduction and will be required to pay self-employment tax (Schedule SE) on their net income (profit) as well as federal income tax. All these forms are part of the year-end 1040 income tax filing. The self-employed writer will also usually be required to pay estimated quarterly taxes on Form 1040-ES (if the tax liability is to exceed $1,000).
The goal is first and foremost to lower your taxes! The writer has a number of tax deductions that are unique. In the balance of this article we will try to break them down to their component parts to make the issues understandable. For the IRS, all deductible business expenses are those that are:
The writer has a bag of basic expenses that easily fit the above criteria: travel (hotel, meals, etc.), vehicle and transportation, office equipment, supplies, books & publications, home office expenses, legal and professional fees, printing costs, etc (see our complete list). Letís review some of the more complex and contentious deduction areas, but first letís discuss income.
Income for the Writer
Income for the writer is: all payments for articles, editing work, script writing, ghost writing, book royalties, income from teaching, etc. regardless of whether or not you receive a 1099 at year-end. It is a common misconception that if you do not get a 1099 then it is not reportable income. This is untrue. If you have income in any form (including bartering), it is required to be reported on your tax return. The form 1099-MISC is supposed to be filed on any payments made to an individual for services amounting to more than $600 in any calendar year. You may also have W-2 income working as an employee working for a magazine or other publication. Keep in mind that you may still have deductible expenses in this capacity if your employer does not reimburse you for expenses.
Travel & Meals
The professional writer is allowed to deduct all expenses associated with overnight business travel. These include meals (only 50% deductible), hotel & lodging, reasonable tips, dry-cleaning, phone calls home, etc. Overnight travel is roughly defined by the IRS as travel that is far enough away from home so as to make it inconvenient to return home at night. Travel could include expenses related to assignments and research for a specific article or book and will include many of the expenditures made on such trips. The other question often asked is whether or not the travel deduction applies for mixed vacation/business travel. If the trip is primarily business then deductibility will be maintained. For example: a trip to NYC for a weeklong seminar or conference that includes a two-day stopover in Philadelphia on the way home to visit a friend. In this case the entire NYC trip would be deductible but the expenses related to the Philadelphia stopover would not be. Since maintaining receipts on the road is difficult, consider using the IRS "meal allowance" for deducting meals when traveling. This "meal allowance" (adjusted annually by the IRS) ranges from $46 to $71 per day depending on the location (visit www.gsa.gov for latest rates). In practice this means that receipts for meals are not required as long as the travel itself can be substantiated. This "allowance" includes all three meals and incidental expenses for the day. Travel for spouses or dependents are not allowed unless they are employees in the writerís business.
Meals are deductible (remember, only 50%) as part of the overnight travel. They are also allowed as a separate (non-travel) deduction when they meet the criteria of "ordinary, necessary and business related." This means that the meal must include direct business discussions. This can mean lunch or dinner meetings with agents, fellow writers, publishers, etc. If a direct business purpose were documented then the deduction would be allowed. These meals could include discussions on publication schedules, research, and interviews, meetings with lawyers or accountants, and publishers. The best place to keep records for these expenses is in an appointment book. Log into your book who was present, and briefly the nature and substance of the discussion. I often suggest that you keep a copy of the personís business card as further substantiation.
Automobile & Vehicle Expenses
The use of your automobile is probably one of the most common and largest deductions for writers. The automobile use expense can be taken in two ways. The first method is by using the IRS "standard mileage allowance." In 2013, this annually defined allowance is 56.5 cents a mile (56 cents in 2014). To take this deduction you do not need receipts, only records that show the distances driven and the business purpose of the trips. These would include travel to publishers, trips to pick up office supplies, driving to libraries & bookstores, trips for research, etc. The best tool for tracking and calculating this expense is your appointment book or calendar. If your calendar has a record of meetings and shopping trips it can be used as a tool to estimate your mileage deduction (odometer readings are appreciated by IRS but NOT required). The second method is to write off direct expenses. In this method you actually depreciate the cost of the vehicle (over 5 years) and then tally up gas slips, repairs, insurance, etc and use that amount as a basis for your expense. This method requires more work and organization. If you were writing off a tour bus, cube van or other larger vehicle, the second method would be preferred. In my practice I often find the mileage allowance method generally yields the highest deduction for straight automobile use. In any case the IRS allows the taxpayer to calculate the best method year by year and take the one that yields the highest deduction (within limits).
Equipment purchased is generally "depreciated" and written off over 5 or 7 years on Form 4562. Depreciation is a technique for expensing or writing off purchases that have a useful life of greater than one year. In other words, a computer is intrinsically different in nature than office supplies because the computer will last longer than 1 year. Office supplies, books, publications, etc. will be written off (or deducted) in the year of purchase. Most office equipment (computers, faxes, palm pilots, printers) is written off in five to seven years. These "depreciable lives" are defined in the IRS code. The main tax strategy when it comes to depreciation is the use of what is often called "the section 179 election." The IRS allows taxpayers to "expense" up to $500K of equipment in 2013 and it drops to $25K in 2014 unless changed by legislation. Remember, this "section 179 expensing election" only accelerates the deduction into one year; in either method the artist is able to write-off (depreciate) the full cost of the purchase.
The Home Office or Studio
The home office has been a contentious subject in my profession for a number of years. With recent legislation the home office has finally returned to its rightful place as an allowable deduction for many writers. In fact, a recent tax court case helped seal this fact. If you use a room (or rooms) in your home exclusively for your writing you will probably qualify for the home office. The use of the room can be a rehearsal space, storage area for equipment, teaching space, record keeping for the business, marketing, etc. The home office is a fairly straightforward deduction to calculate on form 8829. It simply utilizes a formula based on the square footage of the business portion (the home office) of your home vs. the total square footage of the house or apartment and applies that percentage to all associated costs. The costs could include rent, mortgage interest, real estate taxes, condo fees, utilities, insurance, repairs, etc. Other rules that come into play here include the "exclusive use" requirement. This rule states that the home office must be used only for the business ≠ no "mixed use" allowed. In other words the home office cannot be part of a larger room such as the living room unless the business part is partitioned off in some way. The home office can be a powerful write-off as it allows the writer to deduct a part of what were non-deductible personal expenses. Look into the new "Simplified Method" beginning in 2013.
Other Unique Deductions
Writers have other unique deductions that are considered personal for most other taxpayers. These include books for research and professional enrichment, CDs, videos, DVDs, tickets to plays & movies for script research. Remember not to get greedy on items like tickets, books and CDs. The IRS loves to attack deductions such as these. But they are allowed since writers must keep up with trends in their profession. Most tax preparers call it "research," but be prepared to justify it. In any case do not deduct EVERY concert or show you attend or book you buy in the year; they canít all be "research." This also holds true for videos, DVDs, and CDs since some purchases must be for personal pleasure alone.
Remember that this outline is not intended to be the whole story. The Federal Tax Code is very complicated and your specific applications should be reviewed with a tax professional before filing your taxes. The writer is unique in the world of taxes. When you are shopping for a tax preparer please make sure they have some experience in taxation for performers. Also, organize your numbers using our attached worksheets (and bring along this article), it will make the process easier, cheaper and will help you maximize your deductions. Ask your preparer about other tax saving strategies for self-employed individuals such as retirement plans, health insurance and deduction timing.
© Peter Jason Riley, CPA
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