Tax Basics for Writers
Tax Basics for Writers
By Julie Tollefson
Ah, April. The month that includes everyone’s favorite time of year: tax season. Whether you’re a beginning writer who hasn’t sold a book (yet!) or a seasoned pro with a 20-book series under your belt, MWA Midwest president and CPA Mindy Mejia offers five tips to help you face the daunting chore of reporting to the IRS with confidence.
No foolin’.
1) Conduct your business as a business — Regardless of where you are in your writer’s journey, treat your writing as a business and so will the IRS.
“A lot of the time, writers and artists in general are not encouraged to think of themselves as business people, but the IRS taxes all of our income the same,” Mindy says. Don’t be afraid to declare your writing a business, even if you’re not making much money from it. Sure, the IRS wants to see a profit. If you make a profit in three out of the past five years, the IRS presumes you are a business. If not, it may presume writing is your hobby and you will have to prove otherwise.
Fortunately, “the tax court has been very sympathetic to artists,” Mindy says. You can show you are in business in a number of ways: the pile of queries you’ve sent to agents or the stack of stories you’ve submitted to magazines, for example.
“As long as you are earnest and tracking everything and acting like a business, you will be a business,” Mindy says.
2) Report your royalties correctly — Reporting royalties can be tricky, even for accountants, because writing royalties are completely different from, say, the passive royalties distributed to investors in an oil and gas company. “Our royalties are earned income,” Mindy says. “The book does not write itself!”
Report writing royalties as ordinary income. Software such as Quickbooks or Turbotax may kick royalties out to a Schedule E, so double check and make sure your royalties are reported on Schedule C: Profit or Loss from Business.
“That’s what allows us to deduct all of our expenses — home office, mileage,” Mindy says.
Some accountants might not be familiar with reporting writing royalties in this way. “I’ve had accountants in the past that I’ve had to educate,” she says.
3) Track your expenses — It’s easy to forget about recording expenses in the moment, but Mindy has a strategy: “I always tell people when they’re starting any kind of business to get a credit card or open a new bank account and put all of your expenses through that account.” At the end of the year, when you’re trying to remember how many meals you ate at Bouchercon or how many reams of paper you bought for your home office, all of that information will be available in one place. Make sure to keep your receipts, in either a physical folder or a folder on your computer.
“It makes your life a lot easier when it comes to tax time,” Mindy says. “A little bit of proactive work can help you a lot.”
4) Track your miles — “This is one where I see people not getting as much of a deduction as they should,” Mindy says. Even if you don’t have a book coming out, you are incurring business miles if you are making trips for your book. Planning a trip to conduct research? Log those miles. Driving to the post office to mail ARCs to reviewers or swag to readers? Log your miles.
“Those miles can really add up during the course of a year. Don’t lose out on those,” Mindy says.
Use technology to make it easy on yourself. Try one of the apps you can download to your phone or go old school, as Mindy does, and make notes in an old-fashioned spreadsheet.
“As long as it’s written and can be printed out, the IRS is happy,” she says.
5) Not every book you buy is a deduction — Mindy knows this tip won’t be popular, but the tax court has ruled. You cannot deduct every book you buy as research unless you can make a direct, concrete connection between it and your work, Mindy says. Some accountants may be more aggressive in allowing you to deduct everything in your TBR pile, but know that if you ever get called to explain yourself to the tax court, they may challenge your purchases as unreasonable. To justify the deduction, you’ll need to be able to draw a straight line from the information in that book you bought to how it enabled you to write your own. “Track your expense and line it up with what you’re selling,” Mindy says.
The good news is that many, many other expenses associated with writing are deductible. Computer, mouse, keyboards, an ergonomic chair, software, website expenses, mileage, conference registration, dues for MWA (or any professional organization), costs incurred to attend conferences, travel — all are deductible. Meals when you’re traveling are 50% deductible and — in excellent news for crime writers — that includes drinks, because the IRS considers drinks a meal.
Cheers!