by Margaret Maron
I have yet to meet a writer who doesn’t want to quit her day job and write full time, but I’ve met lots of writers who don’t pay enough attention to the business aspects of writing and who wind up giving the IRS money they could have kept in their own pockets.
I am not a tax expert and I certainly don’t play one on television, but these are some of the things I’ve learned about the tax code along the way to becoming a fulltime writer. If you proceed with caution and don’t try to carry your fictional skills too far over onto your 1040 form, you should be okay with the IRS.
First off, is writing your hobby or is it your business? You’ve always loved to write and now you’ve sold some short stories for a few hundred dollars or you received a modest advance on your first book and then didn’t sell anything else for a couple of years. Are you a professional writer or not? If you aren’t sure, then go to the IRS website and search for “FS-2007-18, April 2007 - Business or Hobby?” The guidelines laid out there are fairly simple, especially the statement: “The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.” That’s the key. Three out of the last five years. It doesn’t have to be a large profit, just enough that the IRS won’t audit you because you deducted your writing expenses as losses those other two years.
So what are business expenses? To quote FS-2007-18 again, “An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business.”
In other words, a plain-vanilla computer would be an ordinary expense. A high-end computer with all the bells and whistles could also be considered appropriate for a writer. So would a camera to document scenes for your book. A weekly manicure to keep your nails short for typing? Don’t bet on it. But a trip to England might be.
Most writers don’t earn as much as doctors or lawyers or bankers, but we get to deduct everything they can; and because our “work product” grows out of our imagination and experience, we get to deduct almost everything that feeds that imagination: magazines, newspapers, professional and trade journals for research, membership in professional organizations (Sisters in Crime, MWA, Authors Guild), registration fees for related conferences, writing classes, every penny you spend in a book store or office supply store, expenses related to your website, and trips to exotic locales where your books are set.
Repeat after me: All travel is research. Never mind that the kids are along or that you’re visiting your sick Aunt Minnie in Toledo. Hey, you might want to set a scene on a cruise ship or in Disney World or in Toledo. Who knows? You do not actually have to write a scene set on a cruise ship or in Disney World or Toledo as long as you take a few notes and keep a log. Most cities have book stores and libraries. If you arrange to go by and sign stock at the store or to speak at the library, then it’s automatically a business trip. A trip to Venice resulted in a short story that I sold to EQMM and my accountant thought that deducting 80% of my expenses for the whole trip was reasonable. I took notes along the way and I kept a log.
If you don’t have a log, please go out and get one right now—your mileage to get to the store and the cost of the log itself are both tax-deductible. Force yourself to use it. Yes, your favorite electronic gizmo can record data, too, but an old-fashioned paper log will never disappear into an electronic black hole. I use one of those week-at-a-glance calendar books and staple a flat plastic bag inside the back cover. Every trip into town to buy a ballpoint pen, an ink cartridge or a ream of paper is a business trip. I record the miles in red ink at the top of that day’s space along with the cost of the supplies, and put the receipts in the plastic bag. If you had lunch that day with your writing group, you can jot down a note or two about any writing or publishing tips that you might have picked up, along with the cost of your “business lunch.”
At the end of the year, I hand the log to whoever’s doing my taxes and all she has to do is add up the red figures. She doesn’t have to look at the receipts, but they are there should the IRS start asking questions. Again though, the IRS recognizes the validity of logs, especially when backed up by receipts or cancelled checks. You will be amazed at how quickly mileage and expenses will add up. At 50¢ a mile, I can document about 4500 business miles a year. That’s a deductible worth $2250.
Then there’s per diem, the amount you can claim over and above hotel and airfare for the various cities you visit to promote your books or do research.
For example, say you’re going to Bouchercon in San Francisco this fall. You can deduct all travel expenses: your mileage to and from the airport, your parking fees, your air fare, your transportation from airport to the hotel, your hotel room, the $2 you will leave on the bathroom counter for the maid every morning (you do tip the maid every day, don’t you?), the cab you’ll take to a restaurant to meet your editor or agent, etc.
Google “Per diem rates” and you’ll see that for the year 2010, the IRS will allow you to deduct $71 a day for your meals and incidental expenses in San Francisco. (In Toledo, it’s only $51. Sorry, Aunt Minnie!) Yes, you could list your meals and incidentals individually, but it’s simpler just to take the per diem rate rather than try to get a receipt for every hot dog, drink, or tube of toothpaste. Your accountant will appreciate it, too.
Speaking of which, the accountant’s fees are deductible as are payments to a research assistant, a web guru, or anyone hired to help you in your work as a writer.
If you rent an office, all expenses related to it are deductible. If you have an office in your home, you can deduct a percentage of your mortgage, taxes, insurance, utilities, and the new roof. The definition here is that your work space is that part of your home “used regularly and exclusively in your work.” This means you can’t claim the whole dining room if the family still eats dinner there every evening. But you can claim a corner of any room where you regularly work if those few square feet are maintained exclusively for your work.
Again though, let me state for the record that I am not a tax lawyer nor an accountant, so if in doubt, talk to an IRS agent. They can be very helpful and will sometimes suggests deductions you may not have thought of. (I’ll never forget the time an IRS agent told a friend’s husband, “She’s hired you to be her chauffeur and body guard? Then you can deduct your gym fees to stay in shape!”) For what it’s worth though, I’ve been following these modest practices for thirty years and have never been audited even though I claim several thousand in deductible expenses every year. Good citizens should gladly pay their honest share of taxes, but nothing says you have to pay more than that unless you’re too lazy to document your deductions.
Good luck and here’s hoping you’ll soon earn enough to think about becoming an S-Corp
Margaret Maron is a founding member and former president of Sisters in Crime. Her current book is Sand Sharks. The 16th in her Judge Deborah Knott series, Christmas Mourning, will be published November 2010. Visit her web site: http://www.margaretmaron.com/