© 2014 Gary Hensley
Whether a new or veteran writer, you are in the business of writing if your intent is to write long-term and make a living—or at least a profit—from your work. You are self-employed; therefore, you are a sole proprietor for tax purposes. You will need to file a Schedule C with your federal Form 1040 to report your writing income and expenses.
Part of your business responsibility includes keeping accurate business records during, not after, the calendar year to track your income and expenses. You will be on the “cash basis” of accounting, i.e. you report your writing income when it has actually been received and your expenses when they have been paid.
Most of you hire someone to prepare your annual tax return. Many of you keep your participation to a minimum. This is akin to turning in a partially-completed manuscript, replete with grammatical errors, to an editor and then expecting him or her to return a bestseller to you.
The wise business practice is to accurately summarize your income and expense records before you meet with your preparer or do the return yourself. For example, add up all your business miles for 2013 and multiply them by the rate allowed by the IRS (56.5 cents per mile in 2013; 56 cents per mile in 2014). The law requires that you maintain a “contemporaneous” record of your business mileage during the year. For 2014, get a $5 day-planner at Wal-Mart and put it in your glove compartment. Use it each time you head out on business. Jotting down the beginning and ending odometer readings and the business purpose makes you bulletproof if you are audited. You will be amazed at the total amount of business miles—and very happy with the large expense deduction. Proper recordkeeping in other areas will yield the same results.
In addition to proper recordkeeping, take steps to document your professional status as a writer. A diary of your various business activities will be helpful. A manuscript submission/rejection/resubmission record will show persistent effort. Attendance at a writer’s club and writing seminars will indicate you are trying to improve your skills. A separate bank account/debit card for the business is critical.
It’s not unusual for any new business to sustain losses during the early years. However, to have those losses allowed, you must be able to demonstrate that you are active in the business. And that means being a “professional” writer all year long.
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Gary Hensley, MBA, EA is a 35-year veteran in the fields of accounting, auditing, and federal taxation. His experience includes working as a tax consultant to the Ford Motor Company, an auditor for Michigan Treasury, and a revenue agent with the Internal Revenue Service. He has been a writing workshop instructor, most notably with the Midwest Writers Workshop. Gary has had numerous articles published over the last twenty years. Visit Gary at Tax Solutions for Writers.