Tax Tips for Writers

I am not an accountant, and I'm just barely a writer, but I attended an informative presentation on this topic at Love Is Murder, I just met with my accountant, and I'm plagiarizing freely from the very good article called Writers and Taxes from the most recent A View from the Loft. Take my suggestions as just that.

Pre-published Writers

The best tax advice I ever got was to keep track of every penny I spent establishing my writing career, from paper I printed rough drafts on to postage on query letters to receipts for the Nut Goodies I sent with them. Because of my detailed record-keeping, I was able to write all this off at the end of the year, which I did for the three years it took me to get published. I encourage you to make a "receipts and notes" folder in a drawer or filing cabinet, or stuff them in a dedicated manila envelope that you will not lose.

I also devoted a portion of my house (a whole room, actually) to writing. In this room is my computer, a bazillion ripped pieces of paper with story ideas scribbled on them (Sandra Cisneros calls these "buttons," and you sew a story around them), pens, darts to chew on (I'm orally fixated and quit smoking a decade ago), and books I use for research. Because this is a space devoted to my business of writing, I get to write off a portion of all my utilities. Other points a writer (prepublished or published) should consider:

• Your writing must be a business (you intend to make money off of it) and not a hobby (you do it for personal fulfillment and make occasional money off of it) for losses to be deductible. If your writing is a business, keep detailed records and have a clear and honest plan for turning a profit.
• Mileage. The standard mileage rate for 2005 is 40.5 cents per mile until September 1; it's 48.5 cents per mile for the rest of the year, and 44.5 cents per mile for 2006.
• IRA. For 2005, you could contribute up to $4000 to an IRA.
• Withholding. If it looks like you're going to have to pay big for 2005, now is the time to increase your withholding for 2006.
  

Published Writers

Now that I actually have a published book, I have a lot more money going in and out and so have set aside a three-ring binder to record my expenses (review copies sent out, the postage I paid to send them, promotional materials I bought, etc.) and income (royalties, books sold by me at booksignings). I also need to collect sales tax when I sell books myself, so I need to keep track of that and file a Minnesota sales tax form at the end of the year. It appears to be a very quick and straightforward form for the amount of sales tax I'll be collecting.

My accountant also recommended I look into filing to become an LLC, which stands for Limited Liability Company. Basically, I'd be a company of one, but having LLC status would protect me legally from debtors or people who would want to sue me on behalf of my writing. Sounds kind of paranoid--I write fictional mysteries, what's to sue about?--but it also sounds smart. The only cost is the filing fee in your state, and you do your taxes basically the same way, writing off expenses with a schedule C. I'm thinking of calling Brad Begley, an attorney and CPA who works with writers and artists, to get more info. His number is 612.333.7530. If you're not from Minnesota and have more questions about tax filing for writers, I encourage you to look for a CPA/attorney in your area who specializes in entertainment. Best of luck.