[Guest Expert] Cindy Morus: Best Tax Tips for Writers – Part 1

You have every legal right to pay the least amount of taxes required by law!

Yes, the tax laws change every year and they also get more complicated but it’s worth your time and energy to pay attention to your finances so you can reduce your tax bill. Managing finances is also a key component of a successful business.

If your business has a loss (more expenses than income), you may be able to reduce earnings from your job (or your spouse’s job) at tax time.

Of course, these tax tips depend on your personal situation and you should always check with your own tax preparer to see which of these tips are available to you.

Here’s what you can do to reduce your taxes and manage your finances.

1. Keep separate accounts.

The IRS loves to see a separate bank account (and credit card) for your writing income and expenses. That’s what “real” businesses do and it’s also easier for you to keep track and manage your finances when they’re not mixed up with your personal finances. Note: interest accrued on business-only credit cards may be tax deductible.

2. Keep track of your income.

This sounds like an easy one but if you do a lot of small freelance writing projects you may forget about some of them. (Your separate bank account will help a lot here). Anyone who pays you more than $600 per year should send you a 1099 which is the freelancer’s version of the W-2 you receive from an employer. These are reported to the IRS so make sure that your income is at least as high as the total of your 1099s. They should be mailed out by January 31 of each year.

3. Keep track of your expenses.

Hopefully, you’re keeping track of your expenses but there may be more deductions available to you than you’ve thought of. Here are a few:

• Advertising including business cards, greeting cards, website expenses, client gift.
• Interest on business credit cards, equipment loans (such as for your computer)
• Legal and Professional Services such as accounting advice and tax preparation, legal advice
• Rent – for an outside office
• Repairs and Maintenance like computer repairs
• Supplies – paper, pens, printer supplies, notebooks or journals
• Travel – to a conference or convention, to your client’s place of business, for research purposes, posting flyers or business cards about your services. Keep a mileage log in your car to record all your mileage including personal so you’ll know how many miles were driven for each type of activity.
• Meals and entertainment – if you meet with a prospective client write down the purpose of the meeting. 50% of these expenses are deductible.
• Health insurance – this can be a tricky one
• Other expenses can be a large category and might include Dues and Subscriptions (magazines), business and cell phone telephone expenses, education and training, appropriate books, software, memberships in professional or business organizations like your local Chamber of Commerce, merchant account fees like Paypal, etc. As a writer, many of your entertainment expenses may be deductible as research – keep a log of the event/activity and how it could be included in some of your writings. Again, having good records will help your tax preparer know to take these deductions.

4. Retirement Savings can really help you reduce your tax bill.

Basically, Uncle Sam is telling you that you’d better be saving for your own retirement and they are encouraging you to do it through the tax codes. There are a number of different plans you can participate with different contribution limits, contribution due dates, etc. in so I’m sending you back to your tax preparer.

Look for more tips next week!

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Cindy Morus is an Online Business Manager (OBM) and was an Oregon Licensed Tax Preparer for 4 years.