So, one of those things that I always dread each year is taxes. I don’t mind paying taxes, but having to figure out what I can expense and what I can’t can be painful. I started early on in my career saving every receipt and bringing a huge envelope full of them to my accountant. I quickly learned that just about 75% of the expenses that I had in my envelope, were NOT deductible from my taxes! That became a lesson on what is and isn’t eligible to be deducted and since then my accountant has been MUCH happier to see me each year. Before I continue, I am NOT an accountant and you really need to talk with yours to make sure you have what you need for your taxes.
The Key Word: PROFIT
The first question you can ask yourself is, am I writing as a hobby or as a job? Do I intend to make money from my writing? The government sums up the difference between the two in one word: Profit. The important part of this is that you will have to have a strong, provable case that you are writing as a business instead of a hobby. Unfortunately, you and I both know that sometimes it may take years before we see a profit for any of our work. I would highly recommend you find a great accountant that understands this and can help guide you through this. Also, a good accountant can be there for you if you ever get audited.
Do I Have To Make A Profit Before I Can Write Off Expenses?
In most cases, the answer is no, you don’t have to make a profit. Businesses lose money all the time and some businesses have existed for years without turning a profit. As I said before, you just have to be able to show that you are not writing for fun and that you hope to make money in the future.
What Can I Write Off?
Ahh the big question is finally here. What things can I write off? The list will vary depending on your specific situation, so again talk with your accountant. The list my accountant gave me include some of the following:
- office supplies
- research tools
- home electronics
- website creation
- website maintenance costs
- promotional materials
- fees for services
- home office space (this one is tricky)
This is just a part of the list of things that can frequently be written off. Talk with your accountant and see what other things in your particular situation might qualify.
Ack! I Got Audited!
Well if you have, and I haven’t yet, if you used an accountant, call him immediately. The most important thing you can do in preparation is to be organized. Make sure you have all your documentation and keep it organized. This is a great way to prove to the IRS that you are serious and you mean ‘business’. Just make sure to keep your business and personal expenses separate if possible. You might also consider opening a separate checking account and running all your expenses through that account. It helps keep things separate.
Should you keep this in mind and work closely with your accountant, I’m sure you’ll be in great shape.