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Fillanzea
11-10-2008, 10:20 PM
This year will be the first year I've made so much as a dime from writing. This is also going to be the first year it takes me more than fifteen minutes to do my taxes!

I'm wondering if anyone knows of any good resources I can go to for issues such as doing my quarterly estimated taxes, self-employment taxes, tax deductions for business-related expenses... all that sort of thing. I've poked around the IRS site and it has some useful information, but it would be great if there were something specific to the issues faced by writers.

(And not one of those scammy books that says wannabe screenwriters can deduct movie tickets.)

(And I really like math, so I'm probably going to try to do this without an accountant.)

JanDarby
11-10-2008, 10:55 PM
I usually recommend using a tax professional WITH SMALL BUSINESS EXPERIENCE, at least the first year. There may be local issues (state or municipal) that the general publications don't cover and a local professional would know. If you're serious about writing as a career, it's generally worth the initial investment to set things up properly and get an overview that's tailored to your experience, and it's also reassuring to know that if you need more in-depth tax advice down the road, you'll already have an established relationship with a professional whose work you've observed.

A smaller, but still worthwhile investment if you're going to do the returns yourself (or even if you're working with a professional, so you'll know the right questions to ask and the right records to keep) is Darlene Cypser's Writer's Pocket Tax Guide, available at on-line bookstores. (Google Cypser and "pocket guide" and you'll find links.) I haven't read the recent versions, and I'm not a tax lawyer specifically, but the earlier versions I read seemed both comprehensive and accessible to the non-lawyer.

There's also the free (but more tailored to lawyers and others who already understand the jargon) argicle by tax lawyer, Linda Lewis here: http://eclectics.com/articles/taxes.html

JD, not giving individual legal advice, just general information.

CaoPaux
11-10-2008, 11:18 PM
Here's Cypser's Pocket Tax Guide (http://www.foolscap-quill.com/wptginfo.html). I've also heard good things about it.

CheshireCat
11-11-2008, 06:07 AM
Um ... just FYI, wannabe screenwriters (or novelists or other writers) can deduct movie tickets. And magazine subscriptions. And DVDs. And, of course, books.

You can also deduct cable or satellite costs.

We're in the entertainment business, and we get our ideas everywhere. Hey, I get character names out of TV Guide.

:Shrug:

donroc
11-11-2008, 06:47 AM
Whatever you do, set up a model for all subsequent years. That is what an accountant told me to do in the early 1960s, and I have used it ever since, both lean and fat years.

maestrowork
11-11-2008, 06:53 AM
Make sure you keep detailed records and receipts, though. My friend, who works in Hollywood, just got audited -- he had to show all his receipts, etc. for all the movie tickets, plays, books, etc. he bought. It's not pretty, let me say.

MaryMumsy
11-11-2008, 06:55 AM
Um ... just FYI, wannabe screenwriters (or novelists or other writers) can deduct movie tickets. And magazine subscriptions. And DVDs. And, of course, books.

You can also deduct cable or satellite costs.

We're in the entertainment business, and we get our ideas everywhere. Hey, I get character names out of TV Guide.

:Shrug:


You can only deduct them if you have at least some income. You don't have to show a profit, but you must have some reportable income to start with. And watch out for falling afoul of the 'hobby loss' rules.

MM

maestrowork
11-11-2008, 07:41 AM
Also, NEVER ever take "Home Office" deductions -- those are instant red flags for the IRS. You'll have a great chance of getting audited, then you'll have a really hard time proving it.

Tish Davidson
11-11-2008, 10:39 AM
I strongly recommend that you look for an accountant who has a lot of self-employed clients - real estate agents, consultants, writers, party planners, etc. It is worth the money to get help from someone who knows what he/she is doing for your first year. A good accountant can help you figure out how to set up the categories for your deductions, what kind of records you need to keep, provide a short course in paying estimated taxes and what the penalties are for not doing so, and give you a good idea of what you can deduct and what you can't. A good accountant can also help you avoid pitfalls if you have another employer and only write part time. If you want to do your own taxes, that's fine, but paying an a good account who is experienced with self-employment expertise for a one hour consultation (go prepared with a list of questions) is well worth it and will save you money and anxiety for many years. The first year is the hardest. Once you get your system in place, it is pretty simple to do your taxes using Turbo Tax or similar software, but you've got to get your deductions straight first and sometimes it is tricky if you have another job.

CheshireCat
11-12-2008, 05:57 AM
Make sure you keep detailed records and receipts, though. My friend, who works in Hollywood, just got audited -- he had to show all his receipts, etc. for all the movie tickets, plays, books, etc. he bought. It's not pretty, let me say.

I made it a rule years ago to never deduct anything for which I didn't have a receipt. During an audit, it tends to be the little things you get questioned on, and having those receipts is vital.


You can only deduct them if you have at least some income. You don't have to show a profit, but you must have some reportable income to start with. And watch out for falling afoul of the 'hobby loss' rules.

MM

Well, yeah. But since the OP was talking about making money writing, I assumed everybody knew that.

When in doubt, get a good accountant.


Also, NEVER ever take "Home Office" deductions -- those are instant red flags for the IRS. You'll have a great chance of getting audited, then you'll have a really hard time proving it.

I'll argue with you on this, Maestro. The bald truth is that writers work at home. I've known no more than three or four writers in all these years who kept a separate office in which to write. And the IRS knows that. Given what we do, a home office is not, in fact, a red flag.

And, yes, I was told that by both an IRS agent and a top-notch literary attorney specializing in tax issues.

I've taken home office deductions since the first year I made money writing, and I've never been audited. Every writer I know takes the deduction, and the writers I know who were audited were audited for other reasons, never the home office deduction.

:Shrug:

But, as I said, when in doubt, consult an accountant. And do yourself a favor and make sure that accountant understands self-employed issues at the very least.

mlhernandez
11-12-2008, 06:12 AM
Also, NEVER ever take "Home Office" deductions -- those are instant red flags for the IRS. You'll have a great chance of getting audited, then you'll have a really hard time proving it.


I tend to agree with this one. My mom's best friend is an IRS Auditor. She warned me against the home office deduction unless I keep very clear records and make sure that I use the office solely for business. My "office" is our home library so I can't take the deduction since the room is used for both work and leisure.

I think this is one of those deductions where you need to be fully informed and very careful. If you're following the rules, take the deduction. If not, yikes. The IRS does not eff around.

Claudia Gray
11-12-2008, 07:07 PM
I've taken the home office deduction twice so far, with no ill results. Is it possibly, like the movie tickets/cable/etc. deductions, the kind of thing that only flies if you can show income originating from the work at home?

maestrowork
11-12-2008, 08:55 PM
I've taken the home office deduction twice so far, with no ill results. Is it possibly, like the movie tickets/cable/etc. deductions, the kind of thing that only flies if you can show income originating from the work at home?

Not just that, you will have to keep very clean and precise records and show that you only use that "office" for work. I say it's an instant red flag -- it doesn't mean you will get audited, and count yourself lucky. But there's a higher chance that you will be -- because most people abuse that deduction -- and you better have damn good records and evidence to show that it is indeed an office and an office only. The problem is if you only claimed it twice -- does that mean the other years it is just another room in your house? See, the IRS is very strict on the rules on "home office." And that's the problem, if you get audited. How you justify "home office"? Simply "my income originated from working at home" is not enough.

When in doubt, ask a CPA.

Claudia Gray
11-12-2008, 09:37 PM
Well, I only just moved into my current place two years ago, so it's not inconsistent from that standpoint. And I always have a CPA do my taxes, so they've apparently been okay with it. It's a difficult thing to keep records on, though; it's not as though I could catalog the hours I spend there other than videotaping myself, which seems to be (a) overkill and (b) a wee bit on the creepy side.

Tish Davidson
11-13-2008, 05:36 AM
Not just that, you will have to keep very clean and precise records and show that you only use that "office" for work. I say it's an instant red flag -- it doesn't mean you will get audited, and count yourself lucky. But there's a higher chance that you will be -- because most people abuse that deduction -- and you better have damn good records and evidence to show that it is indeed an office and an office only. The problem is if you only claimed it twice -- does that mean the other years it is just another room in your house? See, the IRS is very strict on the rules on "home office." And that's the problem, if you get audited. How you justify "home office"? Simply "my income originated from working at home" is not enough.

When in doubt, ask a CPA.

One other consideration is that if you own your home and sell it at a profit, you have to pay capital gains tax on the percentage that you claimed as a home office. If you have lived in your house for a long time and had a big price run-up, this could wipe out all the tax savings from taking the home office deduction. The IRS always gets you, it just depends on when you want to pay. Again, consult a good CPA.

maestrowork
11-13-2008, 05:47 AM
That's a good point. Also you'll have to own your home (or at least one of the primary owners). When you sell it, who and what to claim becomes more complicated...

MaryMumsy
11-13-2008, 08:04 AM
That's a good point. Also you'll have to own your home (or at least one of the primary owners). When you sell it, who and what to claim becomes more complicated...

There is no requirement for you to own the home. Renters can take the home office deduction if they meet the other requirements. The biggie where most people fail the test is exclusive use.

MM

Claudia Gray
11-13-2008, 09:25 PM
I'm a renter and have been the whole time, and the CPAs have had no problem giving me the deduction. Nor the IRS, so far.

CheshireCat
11-14-2008, 04:57 AM
I think a lot of writers have been needlessly scared away from taking the home office deduction.

Here's the thing. If you write full-time and do not have an outside job, the home office deduction is not a red flag. (And in more than twenty years, I have never been asked to prove I used my office space -- in two different apartments and three homes -- exclusively for writing.)

If you have an outside job which earns most of your income then, yes, a home office deduction could send up a red flag. If you claim a home office deduction when you have a workplace elsewhere, of course that could trigger an audit.

But, again, if you write full time, where else are you going to do your work except in your home?

ajkjd01
11-14-2008, 05:38 PM
Someone mentioned the hobby use deduction/business expense deduction.

Correct me if I'm wrong, but you have to show a profit in 3/5 consecutive years to take the business expense deduction, otherwise, it's considered hobby.

For those of us out there just getting our feet wet, there's no way to predict when you'll start getting income, or not.

What I'm doing/planning to do, is to save any and all receipts even remotely related to writing. Meals with my critique group? Check. Conference fees? CHeck. Mileage to and from conferences? Check. Hotel rooms, parking expenses at conferences? Check. Chill mat for the laptop? Check. It's all documented, with notes and references.

Am I planning to use these on my taxes for 2008. No. At this point this year, there is no writing income, although I have a novel making the agent rounds and a short story making the short market rounds. Do I foresee enough income this year to offset my expenses? At this point in the year, I would say it's impossible. (I've been to four conferences this year. No way will I make the income to cover that before 12/31). So the plan is to keep the receipts and start a bookkeeping system for them, and know that if I do start to show income in the next five years, I can go back and file and amended return to take the deduction, with all the supporting documentation.

Fillanzea
11-14-2008, 07:22 PM
Thanks for the input! I'm glad to know that there is a guide specifically for writers, and I will definitely consider seeking the advice of a CPA.

Tish Davidson
11-15-2008, 06:24 AM
What I'm doing/planning to do, is to save any and all receipts even remotely related to writing. Meals with my critique group? Check. Conference fees? CHeck. Mileage to and from conferences? Check. Hotel rooms, parking expenses at conferences? Check. Chill mat for the laptop? Check. It's all documented, with notes and references.

Am I planning to use these on my taxes for 2008. No. At this point this year, there is no writing income, although I have a novel making the agent rounds and a short story making the short market rounds. Do I foresee enough income this year to offset my expenses? At this point in the year, I would say it's impossible. (I've been to four conferences this year. No way will I make the income to cover that before 12/31). So the plan is to keep the receipts and start a bookkeeping system for them, and know that if I do start to show income in the next five years, I can go back and file and amended return to take the deduction, with all the supporting documentation.

Save your rejection letters too. That shows you are actively working at producing income from your writing.

Deccydiva
11-15-2008, 09:36 PM
Move to Ireland! It's tax exempt as long as you meet certain criteria... ;)

ajkjd01
11-17-2008, 05:08 PM
Save your rejection letters too. That shows you are actively working at producing income from your writing.

Oh, yes. Have all of those, and all the drafts of my writing, as well as notes from all the conferences, and for most of the year, kept track of how many hours a week I was working on the writing.

Saltier
08-12-2009, 12:51 AM
I think a lot of writers have been needlessly scared away from taking the home office deduction.

Here's the thing. If you write full-time and do not have an outside job, the home office deduction is not a red flag. (And in more than twenty years, I have never been asked to prove I used my office space -- in two different apartments and three homes -- exclusively for writing.)

If you have an outside job which earns most of your income then, yes, a home office deduction could send up a red flag. If you claim a home office deduction when you have a workplace elsewhere, of course that could trigger an audit.

But, again, if you write full time, where else are you going to do your work except in your home?

I'm awaiting my enrollment w/ the IRS (I passed their tax tests, so once I get my enrollment, I'll be able to represent people before them) and I also have an accounting degree.

One thing that I wanted to add about to the home office debate is that an audit isn't always fun, but it need not be really bad. A small business that I've done taxes for (and been the contact person for the audit, as an employee at the time) has been audited 5 times over about 12 years. They've only had to pay extra one of those times - it was before I was there.

Take all the deductions you can. There's no reason you should pay more taxes just because you're afraid someone might question it. That's what receipts and other records are for.

****Blah, blah, not legal advice....everyone's individual situation is different and you should always check rules yourself....