7 Things a Self-Employed Writer Should Know About Taxes

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By John L. Murray

Reporting your income for tax purposes is a required activity in this world. It can't be avoided, but it can be made a lot easier. There are some simple things you can do, that will make the end of the year burden a lot lighter, it will also give you more time for writing and make you financially more successful.

The first item on your agenda should be to keep good records. The simplest record keeping method for a self-employed writer is to use a checking account. Keep the checkbook, up-to-date and balanced. Deposit all your income to the checking account and pay all your business expenses from the checkbook. You will not remember that cash expense later if you don’t write it down. Cash receipts get lost or mislaid, income is forgotten or overlooked, and by the end of the year it is impossible to reconstruct what has happened without a systematic written record. The checkbook is the easiest method to use for a single person business. Accountants call it the poor man's bookkeeping system, not very high tech, but it works.

Mileage is another huge problem area for the self-employed. Currently there are two acceptable methods allowed in calculating mileage expense: the actual expense method and the standard deduction method. The actual expense method requires adding up all gas, oil changes, car washes, repairs, tires and other vehicle expenses and doing a depreciation calculation to compute the total cost of running a vehicle. Then you must multiply by the percentage of actual use as a business vehicle. For this you need to know actual business miles driven as well as the total mileage put on the vehicle for the year. If you use more than one vehicle you need to do a separate calculation for each vehicle.

The other approved method is a standard deduction method. The rate allowed for 2007 is 48 ½ ¢ for every business mile driven. All you need for the standard deduction method is to prove the number of business miles driven, and beginning and end of the year odometer readings. For most people, the standard deduction method works the best. Once you select a method however, there are strict limitations on changing. As an accountant I have run the numbers both ways and generally the standard mileage method is a reasonable approximation of vehicle cost per mile.

In any event, whatever method is selected, use your calendar, keep track of where you go, and why you went there and write down the round trip mileage. You do not need to actually clock the odometer and write down the odometer reading when you started the trip and the odometer reading when you return. You merely need to know, how many miles you went, the business purpose of the trip, and when you went there.

One nice benefit of writing is that travel can be a deducted as an expense if the travel is related to the research involved in your writing. The IRS standard for deducting travel is that the primary purpose of the travel should be related to the business of writing. Travel, which is for a mixed purpose, both pleasure and research has to be carefully documented to establish how much time was spent in research activities and how much of the travel was for pleasure. Fact situations can be murky, but an established writer will generally be allowed considerable latitude in what they can deduct. Hotel, admissions, mileage and other costs of maintaining yourself away from home are all tax deductible business expenses.

There are some specific rules for international travel, and they are a little tougher when travel is for both business and pleasure.

Meals are deductible in two circumstances: for overnight travel, when you are away from home long enough to require a rest period; or when substantial business is conducted during before or after the meal. An interview or presenting a proposal to a client are typical examples of deductible business meals. Keep track of who the meal was with and the purpose of the meeting, as well as the cost, including tip. Remember though if you are across town and stop at a fast food place for lunch that is not a business expense.

Writers benefit from the tax laws when doing research. They are allowed to write off research expenses even though they are not yet receiving any income from the project. The qualifier on this is as the Internal Revenue Code puts it "they reasonably expect they will receive income as a result of their research activities." Normally, a writer’s cash income lags their production by a large time gap. The ability to deduct expenses when they occur is very important. Without this rule a writer could have a negative cash flow and still owe taxes.

Think about computerizing you records. Keeping track of your income, keeping running a receivable list of what you are owed as well as all the expense stuff and doing it all totally on paper is a headache. If you merely write an article or two, a list is fine. If you have a score of articles and you're selling reprint rights, movie or television rights and have complex business arrangements, consider a computerized program. QuickBooks quicken or other bookkeeping computer programs work. Don't rely on memory. It's too challenging, you'll never remember it all without writing it down.

And lastly, operate like a business. You are in one, whether you realize it or not, if writing is a full-time job or a limited part-time hobby, treat it like it's a job. Approach it with discipline in the area of record-keeping, expenses and chasing after people who owe you money. Set some written goals and continually ask yourself if you were working for somebody else, other than yourself, “would you be doing this?”

Most self-employed business people spend about 15% of their time on administrative tasks. Trying to spend 0% of your time on administrative duties will get you into big trouble. If the business and tax side of what you do is organized, then the writing is a lot more fun and creative.

John Murray is a CPA in Minnesota and has been practicing in public accounting for over 30 years. He is the author of numerous tax articles and a book on traveling with children.

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