[Guest Expert] Cindy Morus: Best Tax Tips for Writers – Part 2

It’s Part 2 of our “Tax Tips for Writers” series. And yes, you have every legal right to pay the least amount of taxes required by law!

Here are four more tips for you:

1. Paying Taxes

• Yes, all your income needs to be declared including bartering exchanges. If you give someone one of your products or services in exchange for one of their products or services, you are required by law to declare that as income. If the product or service is worth more than $600, you’ll need to send/receive a 1099.
• Plan to save a percentage of each payment you receive in a “tax” savings account. I recommend INGDirect for this. In addition to Federal and State Income taxes, you’ll also be responsible for paying the Self-Employment Tax (Social Security and Medicare). When you work for an employer, you’ll notice FICA and Medicare deductions from your paycheck. What you may not know is that your employer is paying the same amount on your behalf. As a self-employed person, you are responsible for both the employer contribution as well as the employee contribution (there are some reductions your tax preparer will handle). That percentage is 15.3% of your profit (not income). Your taxes are required to be paid quarterly.
• Local Taxes – be sure to find out about these because they want their money, too. Our county has a property tax assessment and the next county over has a public transportation tax for the income earned in that county only.

2. In-Home Office Deduction

This can be a very advantageous deduction to take and it must be done correctly.

• Used exclusively and regularly for business including closets or other in-home storage. Must also be your principal place of business including any of the following criteria: where you perform tasks such as bookkeeping or scheduling, meeting clients or is a separate structure.
• You may also be able to deduct a portion of repairs and upkeep, security system, utilities, insurance, rent/mortgage and property taxes. You may also be able to deduct cleaning services if you pay payroll taxes or to another company (can’t deduct if you pay cash) and landscaping expenses if clients come to your home.

3. Deducting Mileage Expenses

• If your principal place of business is your home, you can generally deduct your mileage when you travel from your home to any business-related destination including another business office, a client location, bank, post office, office supply store, etc. The key is your mileage logbook!
• If you home isn’t your principal place of business, you may also be able to deduct travel from one job to another (such as your JOB and a client), travel from one customer to another, travel to perform business-related tasks. Your tax preparer can help you determine if the mileage is deductible as a business expense.
• Travel between your home and an off-site principal place of business (an office or studio) is not deductible – it’s considered commuting.
• You can deduct the cost of traveling from your home to a business-related location like the post office and then on to your office. So, if you have a PO Box (also a deductible expense if it is for your business), you can deduct the mileage from your home to the PO Box and then from the PO Box to your office.
• Note: If you didn’t keep a log for last year, go through your calendar and determine the miles travelled. Your check register and credit/debit cards can also give you clues about your business travels.

4. More Tips

• If a client reimburses you for expenses, you can’t deduct them
• You can’t deduct the time you contribute to a charity even if you would have been paid for it – without being paid, there is no donation. Don’t claim a charitable deduction for supplies you already deducted as a business expense.
• Do keep track of any charitable miles though as they may be deductible on your Schedule A
• If this is your first year in business and you have significant materials and equipment you’ve accumulated over the years, you may be able to convert that to a business purchase and deduct or depreciate it. Your Tax Preparer can tell you how to do that.
• If you have only one telephone line coming into your home, that line is not generally deductible but a second phone line may be.

Tax deductions are a very important way to reduce your income. However, don’t get in the trap of saying to yourself “I can buy that because it’s a tax deduction”. You still have to earn the money to pay for it!

I can’t stress enough the importance of using a professional tax preparer. Yes, it is an expense (deductible), but they are trained to maximize your deductions and minimize your risk of audit.

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