lonfiction recently asked me via email about tax planning for writers.ie When should a new writer begin claiming writing income/expenses etc, and how would a smart new writer go about maximizing his personal (and legal!) tax benefits?? What can you claim that few people realize? What errors of knowledge or recordkeeping follies will get you in trouble with the tax man?Disclaimer: I am not a tax professional. I am not a legal professional. Nothing I say on this topic constitutes legal or financial advice.
That being said, I began claiming writing expenses on my taxes once I began seeing measurable income. Ie, the second year I was selling. There's a lot of confusion out there about the IRS's "hobby" rule, but every piece of solid advice I've ever seen seems to indicate that if you're making documentable career progress (which includes year-over-year growth in income), you can consider it professional work.
An enormous amount of what a writer does is potentially claimable. For example, a trip away from home may constitute research. But the nuances are incredible -- did the trip include a spouse or kids? Can't claim their portion of the expenses. Etc. Etc. Likewise, I know people who deduct their cable bills, but they write media tie-in novels and that's a research expense. I claim many of the books I buy, because they're research expense.
One of the two most important things you can do, in my opinion, are track your work with a work diary. At a minimum, log each first and finished draft, log each send-out, and log each sale. That way if you get audited, you can readily produce documentation of continuous professional effort -- ie, prove you're not scamming a Schedule C.
The other is to save everything. I even photocopy checks I receive, and file them. Documentation of all expenses (duh) is critical for tax compliance.
Most of all, either read up on this topic in detail or (even better) hire a tax accountant who's very conversant with writers and their tax profiles. Writers have a very different tax picture, including allowable deductions, than most professions, so your average bear of a tax accountant may have no idea, or even flat out wrong information, about how to advise you.
Comments?