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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 it’s time to bone up on the U.S. Department of the Treasury’s 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 isn’t 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: "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). 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 C-EZ.

4. Log Transactions Regularly: Procrastination can lead to crunch-time mistakes, headaches and late filing penalties. That’s 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." We’re talking business-related mileage, writers’ conference fees, postage, memberships, paper and that lobster dinner you bought for the editor you’re 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 you’ve bought, that is, stuff you don’t 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 he’s most likely using a "separately identifiable" space in his home exclusively and regularly for the business of writing. If, for instance, the children’s 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 contributor’s 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 you’ll 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

Find more interesting articles at authorsden.com/bethfowler

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