We’re counting down to tax day — April 15th here in the U.S. — which means some folks are scrambling to find their receipts and their statements and all of their various forms to take off to their accountants, while others are playing with tax software or reading through the intimidating tax brochures meant to walk you through filling out the forms yourself.
Writers and taxes have a contentious relationship at best. Writers understand that several aspects of their chosen careers are the very things that raise red flags with the IRS, such as taking a deduction for a home office space, research trips, and other costs of doing business. But that’s no reason to panic.
Whether you’re a new writer who has yet to make any money or a seasoned pro, it’s important to be diligent in your record keeping throughout the year, and to consult with a tax advisor in order to be certain of the tax laws, which tend to change pretty frequently.
A few tips:
Save everything. All those receipts from your trip to a writers’ conference, your books, cabs taken, office supplies, everything. Make sure you jot down a quick note on the back of the receipt regarding what the item was, and its purpose. If it’s a cab or restaurant receipt, indicate if you left a tip, and the amount.
Keep records of bills. If you work from home, you can deduct a portion of your heat, electricity, etc., so be sure to have copies of those household bills in with your work receipts. Likewise, if you pay for your own health insurance as a self-employed writer (as opposed to receiving coverage from a day job or through a spouse’s plan), those bills are also deductible.
Take pictures of your home office space, including any furnishings you’ve designated for work use, such as your desk, computer, bookcase, etc. This documents the existence of your dedicated office so that if you move and are later audited you have proof of that office’s features.
Don’t assume everything you do or purchase that seems “writerly” is automatically deductible. If you spend a thousand dollars every year on novels for your own reading pleasure, you can’t necessarily consider them all “research” materials. Talk to your tax advisor about the sorts of items that you can legitimately call work expenses, and under what circumstances they count.
Organize as you go. Set up a system that’s easy for you to remember and then take a little time once a week or so to keep it going. A simple accordion file with A-Z labels can be an easy way to track receipts. Designate categories that make sense to you and that will simplify the tax process when you sit down to actually do your taxes — whether on your own or with an accountant. For instance, you might separate your receipts out by Technology (computer, printer), Travel (accommodations, food, transportation), Conference fees, Office supplies, Insurance, Books and magazines, Utilities, and so on.
Plan for quarterly taxes. Self-employed individuals, for whom there is no company withholding a portion of their paychecks to send to the IRS, are required to pay their taxes on an installment plan, sending in a partial payment four times over the course of the year. The first year you file as a writer, you won’t need to worry about this, but as you wrap up that first tax return, you will be given the option to calculate your quarterly tax payments for the following year, with the first payment due April 15th, and subsequent payments to be sent on the 15th of June, September, and January. You will pay next year’s taxes based on whatever you earned this year, and must pay at least that amount. If you make more money than anticipated, you will make up the difference the following April. If you end up making less, you’ll get a refund. However, if you pay less than you did the previous year, and also end up owing more, you’ll owe a small penalty on top of the difference.
The safest bet is to plan to pay each quarter, and that means setting aside a portion of every check you receive as a writer to cover those tax bills. It can be difficult, especially in early days when the money might seem like small potatoes, or even later, because writers’ paychecks tend to come in waves — money when you sign a contract and then nothing until you turn in a manuscript, or royalty checks only a few times each year. But the better you become at remembering those tax bills on the horizon, the more likely you’ll be to set aside the money necessary to cover Uncle Sam’s demands. With a little planning and some good deductions, you’ll end up with some money left over at the end of the day.
Obligatory disclaimer: I’m not a licensed tax professional, so please do speak with your own tax advisor regarding how to best handle your own tax return.