A Taxing Situation: Tax 101 for Authors

Let’s talk taxes. Come on, wake up!

I know this is a dry topic but it is one that is crucial to writers, artists, and other people with similar jobs. We like to concentrate on the creative aspects of our jobs and tend to lock the mundane tasks away in a dark cabinet. I would much rather describe the glint of sunlight on a mountain pond than try to figure out what percentage of my recapture on the depreciable property I can claim on my Schedule C or 8829!

I will say right here that I’m not an expert. While writing this article, I had much more technical details and jargon, but I stopped myself. I am not an accountant! I was confusing myself and I know I would confuse all of you. The best thing you can do is consult your tax professional. I don’t know how my air conditioner or car or computer work (other than press ‘On’ or turn the key), so I rely on experts to help me. It is the same with our taxes. Talk to your accountant and make sure you are taking all the steps necessary to protect yourself.

For tax purposes, you need to think of yourself as your own employee. Open a separate bank account from your own personal funds. Find the best organization method for you, whether it is file folders with paper copies of everything you do or a digital system. No one wants to be audited but if you are, you will save yourself the stress and worry by being prepared and having easy access to your information.

The downside to being self-employed – you are responsible for paying all taxes out of your income. With a steady employer, they pay part of your Social Security and Medicare taxes. (Remember the old joke – Who is FICA and why did he take all my money?) As a self-employed worker, you get pay as the boss and the employee! Yeah! This can throw you into higher tax brackets which means paying more money.

There is good news though. Deductions, deductions, deductions! They are a writer’s best friend. By keeping track of certain items, you can reduce the amount you owe Uncle Sam. So what is deductible?

  • One glory of the home office is writing in your pajamas. Another is you might be able to declare the office portion of your home as a deduction. Be honest. If you have a dedicated desk where you work for hours on your craft, you could deduct that. Even a small corner with a desk and chair can count. If you write an occasional article on your laptop sitting on the couch, the deck, or at the kitchen table, you probably cannot use the home office deduction. If you qualify, you can even deduct a portion of your utilities and mortgage payments.
  • Writing a piece on the Corn Cob Festival of Moulton, Alabama? (There is no such festival, but I am going to start a petition to get one!) Travel for research, including mileage, lodging, meals, gratuities, and tickets may be deducted. Keep track of all your receipts! Make notes if necessary. Today you’ll remember this lunch receipt is for an interview you did with an interesting artist or historian for research, but will you remember in three years if you are audited?
  • You will appreciate depreciation. We all have our trusted computers, laptops, phones, and printers. And they all cost us plenty. You can offset the cost of these items by ‘depreciating’ their value. If you buy an expensive new laptop, you can deduct portions of the cost over a period of years and not have to claim the whole expense in one year.
  • Remember I said you were responsible for paying all of your taxes out of your earnings? Here’s a little good news – you can claim 50% of that amount as an income tax deduction. You don’t even have to itemize to take this deduction. It goes on Form 1040 as an adjustment to income. This can save you a nice amount by reducing your taxable income.
  • Health insurance is a must. As a self-employed person, you are responsible for the costs of your own health care, vision care, and dental care. Luckily, health insurance is tax deductible if you are a self-employed worker. If the policy is in your name, these deductions could extend to your family members. This is a wonderful deduction – it could save you thousands of dollars.
  • Are you a member of a writing-related organization or group? Most genres have national organizations for writers, such as Romance Writers of America, The Author’s Guild, or the National Association of Writers. Membership dues and fees are deductible.
  • Do you host a website or use word processing programs or send emails? Silly question, right? As writers, we can deduct the cost and expense of software programs we use to run our business. You can even deduct cell phone usage, as long as it is for legitimate business purposes.

This information is just the tip of a Titanic-sized iceberg. There are so many resources out there for writers! Knowing what deductions are possible can save you money – hundreds, even thousands. So find yourself an accountant you like, track your expenses, and stay organized! Uncle Sam will appreciate it as much as you do!

Writing prompt – Caroline put her head down on her desk and squeezed her eyes shut. Adding the numbers again would not help. No matter how many times she refigured, the total was the same. How could she tell her boss she had lost $150,000.00?

Click-to-Tweet: The downside to being self-employed – you are responsible for paying all taxes out of your income. A Taxing Situation: Tax 101 for Authors by Cammi Woodall via @InspiredPrompt