As both a published author, and a tax preparer, I know exactly the worries and frustrations my fellow authors go through every year. If you use tax prep software, you’re never sure what’s allowed or where on Schedule C to put the cost of your website and cover art–or you pay through the nose for an accountant to do your return. Kayelle asked me to offer a few tips to help you feel a little more confident about your taxes, whether this year as you rush to finish by April 15, or pick up some advice to help you out when you file next year.
1. You can write off that whip you bought while researching your BDSM story! There’s quite a bit of latitude for authors to deduct research expenses. Just ask yourself: “Would I buy this if I weren’t writing a story about X?” If not, then it’s a legit research expense. I write off reference books, library fines on research books, and trips to visit a location. I even wrote off some wine I bought while writing a novel about a winemaker. You can also deduct some of the fiction you buy, if you call it market research. Just don’t abuse that one. If you make $500 on writing and spend $1000 on books for “research” you’ll find it difficult to defend if the IRS asks any questions.
2. Document, document, document. This is the magic word for the IRS. Keep records of everything you buy or spend related to your writing business. You can do a spreadsheet or write notes in a desk calendar. If the IRS happens to audit your return, they’ll require this level of documentation, even if you don’t have original receipts. You can even show them the scribbles in your calendar.
3. Other deductions you might have missed: swag for conventions, fees for online classes, contest entry fees, airfare and hotel for conventions, mileage for trips to the library, bookstore, stock photos for cover art, your domain name, RWA meetings (and the fees!), membership fees for any and all author organizations. If you bought it for promotion, report it as “advertising” expense. Anything that doesn’t fit into a standard category on Schedule C goes as “Other.” Just document how the item was used for business purposes: “RWA dues and meeting expenses” or “Books for research”
4. Even unpublished authors can take these deductions. If you had expenses in 2012, but your book won’t be released until 2013, you can and should file Schedule C to get the deductions for 2012. Don’t worry about a loss on your business return, as long as 3 out of 5 years show a profit, the IRS won’t question the occasional loss. And you can’t take the deductions in a later year, only the year you actually spent the money.
5. Missed some of these deductions? If you’ve already filed, but didn’t take as many deductions as you’re legitimately entitled to, it’s not too late. You can file an amended return. It’s a correction to the original, and if you are owed an additional refund, or have a smaller balance due than on your original return, the IRS will send you the difference.
6. Bonus tip: Like most of you, I get paid from many publishers through PayPal. I signed up for a PayPal debit card, which I use for as many of my expenses as possible, so I can keep personal and business expenses separate. Only use this card for business expenses, and pay for personal items only from your personal bank account or credit card. This will help with recordkeeping. Then, at the end of the year, print out the statement and make a note what each item was for. Save that with your return in case two years from now the IRS asks you to substantiate a particular item. You won’t necessarily remember later on.
I teach an online course each spring, covering these topics and a lot more. I do a line-by-line Schedule C walkthrough and home office deductions, and explain self-employment taxes as well as the dreaded estimated quarterly tax payments. The course content is also available in a book, Tax Tips for Authors, from Amazon and Smashwords. (Use coupon code VU67J to save $1.00 at Smashwords).
By night NS Smith writes erotic romance, but by day she’s a financial writer, editor, and tax professional. She holds a MS degree in Financial Economics from the London School of Economics and is a former staff economist at the White House Council of Economic Advisers.