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Tax Facts: Top 9 Expenses for Writers

As a writer, what expenses do you have?

You may have bought paper and pens. Computers and software. Printers, toners, ink, paper. Notebooks, filing cabinets, file folders, desks, and chairs. You may pay for advertising, a website and all additional costs, commissions to your agent, and workshops. You may have expenses related to your car (which I discussed earlier).

Or, if you are self-publishing, you may have expenses for an editor, a front cover, pay someone to take your ms and transform it into the correct format, and other related expenses.

Or you may pay an attorney to review the contract for you. You may have dues or membership fees in writing organizations.

If you are using one area of your home for writing 100% of the time, you have additional expenses you may claim. This includes the business percentage of your utilities, insurance, and your rent. If you are buying your home you may claim depreciation on the business part of your home. Called office in the home.

All these expenses are reported on Form 1040, Schedule C, Profit or Loss from Business. This links you to the 2010 Schedule C. It has not changed in years so you can use it as a go-by.

Keeping up with these expenses can be daunting.

To make it easier, you need either a notebook or file folders. If you have few expenses, a notebook with dividers works well. Label a divider with the type of expense and tape the receipt to a sheet of notebook paper. This makes it very convenient to make notes about what you bought and if unusual, why. This also gives you room to calculate what percentage is used for business if it is used for business and personal.

These are my top 9 expenses for writers, in no particular order of importance:

9. Car expenses (discussed on a previous post).

8. Advertising.

7. Commissions / Legal and Professional.

6. Dues.

5. Travel.

4. Office in the Home.

3. Supplies.

2. Computer and software.

1. Education.

I will share what I know about these expenses individually in subsequent posts.

What expenses did you have this year?

Tax Facts for Writers: IRC 263A(h)

Why Do You As A Writer Need to Know About IRC 263A(h)?

Internal Revenue Code 263A(h). Capitalization Rules.  As a free-lance (self-employed) author/writer, you may be exempt from the capitalization rules. You can deduct the expenses of creating your manuscripts(s) on Form 1040, Schedule C, Profit or Loss From Business, if you meet the requirements of an activity-for-profit. You do not have to wait until you income from the sale of your manuscript(s) to claim these expenses.

What Does It Mean?

Under the capitalization rules, normally you may not claim expenses until you start receiving income from the sales of your products. Then you must spread the expenses over the life of the products being sold.

If you are a self-employed (free-lance) writer with the goal of earning a living and making a profit from your writing (a business), you may claim your writing expenses on your federal income tax return when the expenses occur. You do not have to wait until you are earning income from writing to claim your writing expenses.

How Does This Benefit You?

You report your business-related expenses on Form 1040, Schedule C, Profit or Loss From Business. Even if you have no income from writing. This results in a loss. This loss is carried from Schedule C to Form 1040, line 12, as a negative number. This loss is subtracted from all your other income (or spouse’s income) causing your gross income to be less. When gross income is less, then your taxable income is less and you pay less income taxes.

Drawback?

When you sell your book and receive royalties, you will not have these expenses to decrease your income. Therefore, you may pay higher income taxes and self-employment taxes on this income in the year you receive it. Self-employment taxes are the equivalent of social security taxes for self-employed individuals.


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