Lets talk about deductions. They are awesome, but for some they can be super confusing. So I’m here to break down what they are and how they can benefit you.
→Did you know? Tax deductions are claims you can make on your taxes for your recent business expenses. Other things you can include on your tax deduction list are: donations, large expenses (a house purchase, car purchase, etc.), student loans, and sometimes even medical bills. Consult your tax agent if you have any questions on whether an item is tax deductible.
So when it’s time to file your 1099-MISC, you’ll have a lovely list of receipts with you. Remember to always keep hard copies of receipts for any expenses. If you don’t have a receipt for it, then don’t claim it.
I’ll begin with organization. It’s important to stay organized when doing your deductions and taxes. As I said above, keep all your receipts. But just throwing your receipts in a shoe box (guilty), try tracking your expenses, this way you can not only see where you’re spending, but you can also have a breakdown of everything.
In Google Drive, Word Doc, or even Evernote, create a spreadsheet and use it to track your finances for writing. You should have a budget when it comes to spending, which includes not only marketing, but supplies, research, and travel/meals.
Here’s a sample of what it can look like for a monthly budget.
Now what exactly can you deduct? To make this easier for you, I’m just going to break this down into categories of things that you can deduct for your writing.
→Did you know? Deductions not only help your income tax, but can also save you self-employment tax. Stephen Fishman says that, “[D]eductions are quite valuable–for example, if you’re in the 25% tax bracket, each $100 in deductions saves you $25 in income tax. It will also usually save you about $15 in self-employment taxes as well.” (Source)
Office Supplies and Equipment
In order to write, you’ll need a few things. This section is really easy. Any supplies you buy for writing (such as a laptop, paper, pens, envelopes, stamps and printer ink), can be deducted.
Yes, you can deduct the space you use for writing. It cannot be a place outside your home, such as a rented office space, but you can use a home office. Any space in your home that is used exclusively (as in you don’t use it for any personal reasons or other businesses), may be deducted—even if it’s just a desk and chair shoved in the corner somewhere. This is a nice advantage for any renters out there, because that means that a portion of your rent can be deducted off your taxes.
→Did you know? The IRS recommends using the Simplified Method for figuring out how much to deduct from your taxes. What you do is multiply $5 (the prescribed rate) by your house’s area. The allowable area is up to 300 feet. You then subtract any expenses from your business that are home related. If your expenses are greater than your gross income for your home, than you cannot take a deduction for the business use of the home. To get your total, you’ll take the two lowest numbers from your two totals and that’s how much you can deduct.
- Please note that if you use the simplified method, you cannot subtract any depreciation from the home. For further readers and a more detailed explanation on the process (as well as alternatives), please refer to the office IRS file.
Travel Expenses, Meals, and Entertainment
Travel expenses are deductible, but only if the trip is for writing purposes. That means no vacations! So if you’re going to a writing convention, traveling abroad for research, or taking a car ride to the next town over to collect research material, then you can deduct it. Track your mileage and save any receipts you acquire (gas, air plane, and rental). You’ll need to keep detailed logs of your mileage uses and hold onto those receipts.
This applies to meals too. If you are having a meal on a business trip or if you’re holding a business lunch (maybe speaking with an agent or a co-author), then you can count that meal as a business expense.
There is a bit of a rule when it comes to food. Food has a 50% deductible rate, unless it’s for promoting goodwill to the community, in which case you can deduct up to a 100%. Receipts must be over $75 and you need to keep a record of everything, including the discussion. (source)
If it’s for your writing, then it counts. Anything such as journals, magazines, books, and lectures can be deducted. If you higher a researcher, make sure you get an accurate receipt of the work done.
Legal and Accounting Services
You may keep a lawyer on retainer to review contracts, or have an accountant to handle all your financial affairs for your writing. If this is the case, you can log it.
Do you have an agent who you pay a fee to? Guess what, those fees are deductible!
Do you have a website for your business? Did you hire someone to create a great layout or pay someone to maintain it for you? Those are all tax deductible expenses, as long as you have your records of them. Save your domain receipts and any others applied to running your website.
Cell Phones and Home Phones
This can get a bit dicey. Technically, yes, you can count these. Do I recommend it? No. Unless you have a separate, private line for writing related business, it really isn’t deductible. You need to calculate the percentage of your phone time (including calls, surfing the internet, and e-mails) is for writing-related business. That percentage is how much of your monthly bill you can count towards tax deductions. Remember, you need to have a log and record of all this time spent on your phone. So unless you’re going to keep track of when you receive e-mails, how long you read those e-mails, and all the times you got a call or looked something up on your phone, I suggest just not worrying about this one.
Did you hold any giveaways throughout the year? Save all shipping and purchase receipts, because you can apply those to your deductions list. Make sure you keep a detailed account and also have record of the event you hosted.
Did you hire publicists? Pay a blog tour site to arrange for a tour? Take out an ad in a magazine or on a website? Travel down the east coast hosting a book tour? That’s great, congratulations. Those are all marketing (or advertising) expenses, and you guessed it, those are deductible. Keep an accurate log of time spent, receipts, and records of everything.
If you have any further questions on deductions, check out the IRS webpage. You can also send me a message and I’d be happy to answer them!