Tax Day 2020 may have been postponed by Covid, but it has rolled around, inevitably and painfully. Time to gather receipts, search online purchase histories, and debate the eternal “can I claim a home office?” question.
Turbotax created this lovely primer: Tax Tips for Freelance Writers and Self-Published Authors that covers 1099s, Schedule Cs, home office deductions, self-employed health insurance deduction, self-employment tax, depreciation and royalties. We will leave the super-geek minutiae to the experts and stick with five practical tips for streamlining tax prep so next year will be a little less hellish than this year. Of course, we are not tax attorneys, CPAs or IRS employees, so please consult the IRS website or a qualified tax professional before you file your taxes.
Have a monthly routine for tax prep. At the beginning of each new month, open your spreadsheets. Jess keeps four: one for work expenses (both reimbursed and not reimbursed), one for charitable donations, one for work mileage, and one for income. Once a month she gathers all her receipts, online orders, work trip mileage logs, invoices, check stubs and other notes and enters all of it into the applicable spreadsheet. It is much easier to complete this process once a month than once a year.
Establish consistent categories for deductions. According to the IRS, writers can deduct “ordinary and necessary” business expenses which may include your journal, stickers, pens, printer, printer ink, paper, research books, the postage KJ has to purchase to send out all those Chicken Sisters galleys, external hard drives, your trusty computer, Sarina’s Apple pencil and iPad, the art Sarina has to buy for her book covers, and software such as BookEnds (a citation manager), Dropbox, Scrivener, and iCloud storage. You get the idea. If you have consistent, clear categories in your spreadsheets (e.g. “office supplies,” “postage,” “contract labor,” “subscriptions,” “conferences,” “advertising”) it is much easier to calculate how much you spent in each category.
Don’t forget about self-employment taxes. At 15.3% of your net income, it can come as a nasty surprise at tax time. Do a little research to find out sooner rather than later if you are going to have to pay it.
Think a year ahead. Are you going to have to pay quarterly estimated taxes? Ask your friendly neighborhood tax preparer, but if the answer is yes, it can be tricky to balance the money coming in and the money that must go out four times a year, especially in the first year of paying estimated taxes. On the podcast, Jess mentioned her advance installments for The Gift of Failure arrived toward the end of the year for three years running, so she had to pay estimated payments before she actually had those funds in her bank account. Think about how much you will have to set aside in order to pay your quarterly amounts and don’t touch those funds!
As for the eternal home office deduction question, it’s complicated. Your office must be exclusively and regularly used for your writing work as well as your principal place of business. If you qualify, there’s a bit of work to be done around expenses, taxes, and depreciation. See the link above for guidance.
Consider this a bonus tip: find a reliable tax professional to help you if you can, because the savings can far outweigh the costs of hiring someone, argues Ron Lieber in his recent New York Times article, “9 Reasons to Stop Doing Your Own Taxes.”
Even if you hire someone, you will have to organize your income and expenses in a way that makes sense for both you and your preparer. If you start early, stay on top of your records, and think a year ahead, you will be in good shape when it comes time to file.
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