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Love Writing for Money But Hate Paying Taxes? 9 Tips for Writers
by Beth Fowler
(Disclaimer: The author a writing weenie, not a
tax weenie. Consult a reputable accountant or attorney for tax advice pertaining
to your particular circumstances.)
If you love writing for money, but hate sharing
too much of your writing income with the IRS, then its time to bone up on the
U.S. Department of the Treasurys tax guidelines.
1. Business or Hobby? Visit http://www.irs.gov and type Hobby or Business in the search
field. Read over the descriptions distinguishing a business from a hobby.
Generally speaking, if writing activities meet some or all of the descriptions,
you can probably claim business deductions. Some tests for business vs. hobby
include writing that is profit motivated, conducting writing activities in a
businesslike manner, spending major chunks of time and effort on writing.
Earning a profit isnt one of the tests.
2. Ban Boo-boos: The sooner Uncle Sam receives
your completed form, the sooner you get your refund check
unless the form gets
held up in the federal labyrinth because it contains the kind of boo-boos
millions and millions of filers make every tax year. According to Leslie Haggin
Geary, CNN/Money Staff Writer, (http://money.cnn.com/2003/02/13/pf/taxes/q_taxerror/) the most
common errors comprise writing the wrong social security number, forgetting to
sign the form, making math errors, using the wrong tax table, not applying for
Earned Income Credit, not including W-2s and 1099s; not claiming child-care
credit, and not claiming mortgage deductions.
3. Hire an Accountant: "Itll 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). Accountants know about deductions,
recent rule changes, which receipts and records to keep and are less likely (one
hopes) to make those basic boo-boos laypeople do. By the way, accountants fees
are tax deductible for small- or home-based business owners using Schedule C or
4. Log Transactions Regularly: Procrastination
can lead to crunch-time mistakes, headaches and late filing penalties. Thats
why experts recommend scheduling time regularly to record financial
transactions. Once a day, once a month
the frequency depends on the volume of
paperwork your writing business creates and the amount of time you can tolerate
sorting transactions and logging them in during one sitting. Home-based business
owners and my accountant recommend QuickBooks (www.quickbooks.com) for
recording business transactions. Pencil n paper works, too.
5. Claim Business Expenses: The "Tax Guide for
Small Business" (2003 Publication 334 at www.irs.gov ) defines deductible
business expenses as those which are "ordinary and necessary." Were talking
business-related mileage, writers conference fees, postage, memberships, paper
and that lobster dinner you bought for the editor youre buttering up. All ya
gotta do is keep records and poke a calculator to tally your deductions.
6. Depreciate: Keep receipts of business-related
assets youve bought, that is, stuff you dont use up. Your computer, scanner,
reference books and the like are assets. Ask your accountant to look over these
receipts to determine if the costs can be depreciated for tax purposes.
7. Establish a Home Office: "Each year,"
well-fed Bowerman said, "I get to deduct a portion of my house note, utilities,
and much more." Bowerman enjoys those deductions because hes most likely using
a "separately identifiable" space in his home exclusively and regularly for the
business of writing. If, for instance, the childrens Lego Hogwarts castle is
strewn across the so-called office floor, IRS eyebrows would rise regarding the
"exclusively" criteria. Tom Herman, The Wall Street Journal "Tax
Report" columnist (http://sunday.wsj.com), suggests that people claiming home
office deductions should "understand all the fine print and keep good records,
including photographs of your office, in case the IRS challenges you."
8. Pray about Gray Areas: Federal tax laws have
been interpreted differently by both IRS employees and tax consultants. Are
contributors copies of magazines considered as income? Must authors make a
profit three out of five years to qualify as a business? The answer depends upon
who was asked.
9. Calculate the Bottom Line: "After figuring
your business income and expenses," goes the Tax Guide for Small Business, "you
are ready to figure the net profit or net loss from your business. You do this
by subtracting business expenses from business income. If your expenses are less
than your income, the difference is net profit. If your expenses are more than
and so on.
You might love to hate taxes, but youll
definitely hate paying more federal taxes than you legally have to. Learn about
taxes and keep records so you can reclaim your writing dollars.
© Copyright 2004, Beth Fowler
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