Tax Tips for Writers - Janice Thompson, Author

The wages of sin is death, but by the time taxes are taken out, it's just sort of a tired feeling.
--Unknown

If you’re an established writer, chances are pretty good you’ve already looked into possible tax deductions. But if you’re just starting out as a writer who hopes to write for profit, you’ll need to pay close attention. Let’s start by asking a question:

DOES YOUR WRITING QUALIFY AS A BUSINESS?

It’s so hard to know sometimes, isn’t it? If you’re just dabbling at writing, never hoping to make any money from it, then it’s definitely not a business. But if it’s something you’re following after—passionately, wholehearted—with the complete expectation that you will one day earn money writing, then you can treat it like a business.

If you’re treating this “writing thing” as a real business, then you can use your losses to offset your taxable income. And just in case you want to know what the IRS is looking for, should they decide to take a closer look, consider the following:

First, do you pass the ⅗ rule? That is, did your business make a profit in 3 out of the last 5 years? If so, then it will be treated as a business, not a hobby. If not, then you will have to resort to the following list to make a convincing case that you are a business: You carry on the activity in a business-like manner, the time and effort you put into the activity indicate you intend to make it profitable, you depend on income from the activity for your livelihood.

(Tax tips for writers by Joseph Hazelbaker)

So, how about it, writers? After reading through those qualifications (and there are others listed on the site, by the way) you should have a clearer understanding of your “business.”

If you want to prove you’re taking this seriously:

Save those pesky rejection letters. They leave a nice paper trail, and prove that you’ve been submitting, submitting, submitting.

Don’t let those back and forth emails between you and critique partners go to waste. Save them as proof of your writing journey.

Document every penny of your writing conference costs. Save check stubs, and keep good files.

Basically, just keep a strong trail of where you’ve been and where you hope to go.

Document your hopes and dreams. Write them down, date them, and send them to a friend or critique partner. Include your goals, financial and otherwise.

If you’re working with an agent or editor, include any correspondence between the two of you, particularly notes that pertain to career strategies.

What do you have that you could save as proof?
Does your filing system need improvement?
Have you been to conferences? If so, can you prove your costs?

Deductions (Consider the following quote):

Writers can deduct from their gross writing revenue all their business expenses. To be deductible, a business expense must be “ordinary and necessary,” but “necessary” does not mean “indispensable.” Some common expenses that writers may deduct:

Office and computer supplies Postage
Writer’s workshops and conferences Duplicating and printing

Books, magazines, subscriptions, etc. Professional services (lawyers and accountants)

Telephone and Internet service charges Business use of your car
Advertising and promotional costs Travel, parking and tolls

Professional organization dues Home Office

http://www.absolutewrite.com/freelance_writing/tax_tips.htm

Tax Tips for Writers by Daniel Steven

If you want to count your home office, then you need to have a separate space that’s not used for anything else. For example, if your “office space” is a corner of your bedroom, you can’t use this deduction.

Here are some potential deductions:
Your Website (this is how you promote yourself)
Wireless Internet access
Laptop (and all related costs)
Computer Software
Books (related to writing)
Conference fees
Weekly critique group costs (if you eat out, etc.)
Paid critique/editor
Second phone line
Yearly fees to writing organizations (like ACFW, WIN, etc.)
Subscriptions to magazines such as Writer’s Digest and Writers Market Guide Travel to and from speaking engagements
Items necessary for speaking engagements (projectors, PP, paper, ink)