Wednesday, March 19, 2008

Tax Tips from the Accountant's Daughter

Well, it's that time of year again, when we all scrounge up receipts, collect year-end statements, and try to remember every possible deduction. And though many of the writers I know make most of their income as a cafe barista or a Borders clerk, that doesn't change the fact that their primary occupation is writer and that they can deduct the necessary business expenses. Fortunately, my father is an accountant and has taught me many tricks of his trade. So in honor of tax time, here are some deductions writers should never forget:
  • Travel. Anytime you traveled for research purposes, to and from a conference or book signing, all of those expenses can be deducted. The cab ride to the airport, the airfare or the miles driven on your car, all should be reported to your accountant. (There are different rules for different deductions so I'd let the expert sort that out.)
  • Home Office. Most writers work from home and therefore have a slew of things to deduct. If you have an office that you use exclusively for writing (or are at least able to prove that you do) you can deduct a portion of your rent or mortgage. If you purchased a new computer, printer, or fax that you'll use exclusively for writing, you can deduct that as well. In addition to the obvious office supplies and postage stamps, you can also deduct a portion of your electric and gas bill. If you're working from home, all of the things you use to keep your office going can be deducted as business expenses.
  • Entertaining. Though you cannot deduct entire bar bills and dinner checks, it is possible to deduct portions of your entertaining expenses. If you take another writer out for drinks, treat an agent to dinner or take them to a ball game, all of that should be reported to your accountant. Little tip, next time you're at a conference, each member of your entourage should offer to get a round. That way, instead of each person only paying for themselves, they are paying to entertain colleagues and can therefore deduct it for tax purposes.
  • Research. This one can get a bit tricky and I believe deciding what to and not to deduct as research expenses is a matter of risk taking. If you're writing a book set in Japan, by all means, go to Japan and deduct the trip, hotel stay and various restaurant and bar bills as research. If your protagonist is a bartender and you deduct every bar bill, every weekend, as research purposes, that's a bit more risky. When doing research for a novel or article, make sure that everything you spend is a necessary expense and that it is directly related to what you're writing about.

*Note for the newbies. Just because you didn't earn a lot as a writer this past year, doesn't mean you are not a writer and cannot deduct these expenses. The general rule of thumb is that you should make a profit within 5 years. And even then, you only run the risk of being audited, and if you do get audited, you only need to convince the IRS that you are in business to make a profit. Come on, we're writers. We can convince the pope that Jesus was just a hippie. If you are serious about writing, you will eventually make a profit, probably well within the 5-year expectation, but until then, don't be afraid to deduct.


Laura said...

Thanks for these, Dana. They're great reminders--particularly about the home office. My tax person says that the IRS will let a writer declare their home office as exclusively dedicated to writing if they don't also work from another office--say on a university campus or at a business. This helped clear up a lot of confusion for me!

David J. Montgomery said...

Don't forget, for those folks planning to take the home office deduction -- you must use the space EXCLUSIVELY for work (as Dana says). If you go in there to check your email or pay bills or download porn, you cannot legitimately take the deduction.

From my understanding, this is a potential red flag for the IRS, so proceed with caution. Entertaining expenses are another potential red flag.

But, by all means, never let that discourage you from taking every legitimate deduction you can.

I may be married to a CPA, but I do the taxes. :)

Picks By Pat said...

David makes a good point on the office deduction.

I solve the email problem, however, by creating a separate work email, which I use exclusively for writing related contacts with agents, editors, publishers, and yes, even book reviewers!

That keeps it work related. Same with my computer. If you have games on your work computer for example, un-install them (that's the techie in me talking too).