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Posts tagged ‘Linda Burke’

Tax Facts: Is Your Writing A Business?

I had planned on continuing my articles on writing expenses, however, an issue arose that I thought was important enough to put that off and discuss whether you, as a free-lance writer, have a hobby or a business. I will continue the discussion on expenses in the coming weeks.

Hobby or Business?

Are you writing as a hobby or do you write to make a profit (also known in tax-law-language as an activity for profit/business)?

This question is very important in respect to your U.S. federal income tax return. Your answer determines where you report your income and expenses and whether or not you can claim your expenses now or later.

You need to make this decision before you prepare your income tax return claiming writing expenses.

The Internal Revenue Service (IRS) has very specific guidelines concerning whether an activity is for profit (a business) or is an activity not for profit (a hobby). The IRS presumes your business is an activity for profit if it makes a profit during three of the last five years. If your business does not make a profit during that time, it may still be considered an activity for profit depending on certain factors. If you are audited, you will be asked to provide information proving you are in the business of being a free-lance writer. I have reworded the general questions so they are applicable to writers.

1. How much time and effort do you spend writing?

This includes writing, researching, taking classes, reading “how-to” books, etc.  Do you spend enough time to make a profit?  (For example, a couple of hours every once in a while is probably not enough.)

2. Do you conduct your activity in a business-like manner?

Do you keep your receipts for your purchases?  Do you keep your business records separate from your personal?  If they are mixed, do you identify which purchases are for your business of being a free-lance writer?

3. Do you depend on the income for your livelihood?

Do you or your spouse have another job which pays for your living expenses?

4. Have you changed your method of operation to improve profitability?

Have you taken any classes, joined a writers group or association, or changed genre? What have you done to increase your ability to make a profit?

5. Do you have the knowledge needed to carry on the activity as a successful business?

Have you taken classes or workshops, entered contests, read “how-to” books by successful authors/editors? Have you attended a Small Business Tax Workshop?

6. Have you made a profit in a similar activity in the past?  Have you been successful in your past/present occupation?  Do you use some of the same skills?

7. Have you made a profit in some years from your writing?

Have you made some sales during the years even though you haven’t made a profit yet?  Are the sales increasing each year?

8. Did the losses occur during the start-up phase of your writing?

If you are ever audited, you will need to prepare a statement answering these questions in as great detail as you can in order to verify your claim that you are an activity for profit.  In addition, it might be helpful to include information concerning how many years it took for certain authors to sell a manuscript.  For example, I’ve seen certain authors say it took them 10 years to get published.

HOBBY

If your writing is a hobby, you report your income on Form 1040, line 21, Other income, and your expenses are deductible on Form 1040, Schedule A, Itemized Deductions, line 28, up to the amount of hobby income reported and subject to the 2% deductible limitation.

BUSINESS

If your writing is a business, you report your income and expenses on Form 1040, Schedule C.

The above links are to the 2010 forms since the 2011 forms have not been published at this time.

Do you consider yourself as a free-lance writer (aka business)?


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My Cup of Coffee

My favorite cup

Coffee-lovers were invited to join in celebrating My Cup of Coffee at One Sister’s Rant.

My favorite cup was purchased from the Butterfly House in St Louis, MO. My sisters and I had a weekend celebrating being sisters.

We hadn’t seen each other in more than a couple of years. We flew into St. Louis from Little Rock and Washington, D.C. for an extended weekend. We got haircuts, manicures, and pedicures, gambled on the steamboats and talked. And talked and talked.

One day we went to the Butterfly House. My brother-in-law and I took pictures while my sisters enjoyed watching the antics of the butterflies and the photographers.

I order my coffee from Gevalia. I like the Breakfast Blend for the first cup in the morning. I like several of their blends but that is my favorite.

Back to the coffee cup. Every time I use it, I am reminded of our sisters weekend and the fun we had.

Do you have a favorite cup of coffee? Do you favor one brand over another?

P.S. My sister called to say the link went to NASA instead of One Sister’s Rant so I’ve corrected that. Thanks, sister.

Unconscious Decisions

What decisions do you make unconsciously?

My sisters and I were raised in a military family. Back in the day, my father was transferred to another military station every few years, if not months. We lived in Texas (Waco), Germany, Washington state (Tacoma and Moses Lake), Texas (Amarillo and Victoria), Japan, Okinawa, and Arkansas before I reached the age of 13. Since then I’ve moved at least fourteen times. This doesn’t count traveling for my job.

Since the military moved us, we were limited to the total number of pounds that could be moved. We grew up knowing that we couldn’t accumulate a lot of “stuff” because we would be moving. In addition, although we made new friends each time we moved, we learned that we were each other’s best friends.

After we grew up, moved out, founded our own lives, we found that every two or three years, we got itchy feet. It was time to look for a new job, a new house, a new city, a new boy friend. Failing that, we would re-do our houses, change our clothing selections, change hairstyles, take up a new hobby.

Do you see the back story for this? I didn’t for a long time. Did I mention that I’m a little slow sometimes? I remember the time we were all at my mother’s house and I started discussing this theory. At first they just frowned at me. Then they started laughing because they could see that they had been doing the same thing without realizing it.

Do you make decisions without knowing why?

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?

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