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10 Tips for Writers Filing 2004 Tax Returns
by Beth Fowler

In fiscal year 2003, total US Government internal revenue refunds amounted to $302,556,797,000. Make sure you get every dollars that's due to you this year.

1. Get Down to Business: A new rule allows up to $5,000 of expenses incurred after October 2, 2004 in starting a new business to be deducted, but only in the first year. If you've been treating writing as a hobby, this might be the year to set up a business. Tax laws state that a business must have a clear business purpose and profit motive before writers can claim business expenses Visit http://www.irs.gov/ and type Hobby or Business in the search field. Read over the descriptions distinguishing a business from a hobby.

2. Hire a Professional Tax Preparer: "It'll be one of the best things you could ever do for yourself," Peter Bowerman wrote in his book "The Well-Fed Writer" (www.wellfedwriter.com). The average person doesn't have the time or the expertise to keep up with tax law changes. CPAs know about deductions, recent rule changes, which receipts and records to keep and are less likely to make mistakes. Ask other writers to recommend an accountant. Accountants' fees are tax deductible for small- or home-based business owners using Schedule C or C-EZ. The IRS cautions tax payers against hiring preparers who charge inflated fees and advertise guaranteed larger refunds. The taxpayer is responsible for all information on the 1040, no matter who prepared it.

3. Deduct Home Office Costs: Writers can claim a portion of their home as a home office if the portion is used exclusively and regularly for business. Exclusively means the area doesn't double as a guest room. Regularly means writing is an on-going business. If the office meets those criteria, writers can deduct fractions of utility bills, home repairs and other related costs. "Claim everything you deserve," is New York tax lawyer Gary Schatsky's advice in "SmartMoney" (March 2005 http://www.smartmoney.com/). For information on deducting home business expenses, see IRS Publication 587.

4. Itemize Miscellaneous Deductions: Travel, meal and entertainment costs, professional and association dues, and fees for classes taken to improve one's current job skills are deductible. The standard rate for business miles is 37.5 cents. Sorry, that new suit you bought to wear during your "Freelancing is Fascinating" speech isn't deductible. Read Publication 535 Business Expenses at the IRS web site.

5. Claim Charitable Gifts: The old suit and other groovy stuff totaling more than $500 that you excavated from the back of your closet and donated to charity are deductible. Include a written description. (I take photos of donations in case the tax man cometh.) Also, donations to tsunami victims through January 31, 2005 are deductible.

6. Keep Receipts: Keep those little chits from the parking garage and whatnot. Keep receipts so you don't forget deductible expenses—new laptop, scanner, digital camera—incurred over the year and also in the unlikely event an auditor will want proof of expenditures. Keep receipts for seven years.

7. Remember Simple Stuff: Bill Cressman, IRS spokesperson based in Philadelphia, says that less than one percent of returns are audited. Two simple mistakes trigger many audits—forgetting to sign the return form and incorrectly writing the Social Security number. Other red flags are charitable donations far more than the norm for the donor's tax bracket and questionable business expenses.

8. See EIC: The earned income credit (EIC) is a tax credit for certain people who work and have earned income under $35,458. EIC usually reduces the amount of taxes owed and might also entail a refund. According to a 1995 National Writers Union survey of 1,143 writers, median annual income from freelancing was $4,000 (http://members.aol.com/nancyds/wlot1.html). Depending on other income and spousal income, it might be worth a look at IRS Publication 596 for EIC rules.

9. Claim all Income: The IRS says US citizens are taxed on their worldwide income, whether a person lives inside or outside the United States. The foreign income rule applies regardless of whether or not the person receives a Form W-2, Wage and Tax Statement, or a Form 1099. Travel writers especially take note.

10. Go to Uncle Sam: Visit www.irs.gov/smallbiz or call 1-800-829-3676 for the free "Publication 3207 The Small Business Resource Guide CD-ROM 2004." The resource includes business tax forms, instructions and publications and information on how to prepare a business plan among other topics.

"Getting free tax advice over the internet may be tempting," writes Tara Harper (http://tarakharper.com/k_tax.htm), "but I'd just like to remind you that you get what you pay for. Free is not necessarily a good price, especially for tax advice."

She's right. Consult an accountant for specific advice on your particular circumstances.

© Copyright 2005, Beth Fowler

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