Not to be the bearer of bad news, but your taxes are due on April 15. If writing is your full-time or part-time job, you need to be on top of the tax game. There’s no reason to dread the tax man if you have kept meticulous records of your work over the past year. If possible, hire a professional to do your taxes. The money saved will be well worth the cost of the hiring a CPA. If you plan to file your own tax return, do your research and keep a record of EVERYTHING. Remember, the IRS can audit you up to three years after you file.
If you haven’t been doing a great job keeping track of your expenses, or you were unaware of the tax credits you are eligible for, let this be the year you start treating your writing as a serious business. You will end up paying less in taxes at the end of the year, and may even qualify for a refund.
Here are three steps to become tax-time savvy:
1) Keep meticulous records of anything and everything related to your writing. Remember, if the IRS decides to audit you, you will have to prove that even if you haven’t made much money, you have been working hard. Keep record of all queries you send out and of the hours that you devote to your writing. Create your own “time-sheets” on your computer, and keep e-mail folders that contain all correspondence between you, your agent, and any editors you communicate with over the year.
MOST important is to keep record of your profits. You should receive a 1099 form from any company who has paid you more than 600.00 in a year’s time. Those who owe you less are not required to send you a 1099, but you are still responsible for paying taxes on the profits you have accumulated. Keep a hard copy and a computer file of all of your expenses and profits. File invoices and receipts. Keeping well organized records will save you time and money.
2) Become cognizant of what you can deduct come tax time. Know what tax credits you are eligible for. You would be surprised at the things you are allowed to deduct! Keep a file folder of all work-related receipts. You can deduct the cost of writing supplies, including paper, your printer, your computer, computer maintenance, your business phone-line, mileage spent conducting research, delivering a manuscript, etc., advertising, website upkeep and host fees, money you spend on writing magazines and books, even your premium subscription to Scribophile is deductible. Don’t forget to deduct healthcare costs and childcare costs. If you choose to hire a CPA, you can simply hand over your receipts, smile, and leave it to him. (Remember, a sudden onslaught of tax deductions will raise suspicion and increase your chances of being audited. If you choose to try it anyway, make sure you have adequate proof of purchases and of the fact that you have been working hard to make a profit throughout the year!)
Did you know that if you make less than 75,000 a year in adjusted gross income, you are eligible for the Making Work Pay tax credit? This is a benefit of up to 400 smackeroos! (This tax credit is available next year, too, in case you missed it.) Visit this page on the IRS website to download the form.
3) File your taxes correctly. Again, I recommend hiring a CPA. If you choose to do it yourself, here are some basic instructions:
- Schedule C Profit and Loss from Business : This will determine whether you made a profit of a loss this year.
- Schedule SE: This will determine what Social Security, federal, and Medicare care taxes you owe.
- 1040 Form: This is the form where you calculate your tax credits and deductions.
Last step: Write a check and send it in. If you’re lucky, file the forms and wait for your return. Can’t pay it? Contact the IRS and negotiate a payment plan. Do not get behind in your payments. You do not want to owe the IRS money. Think of it as owing the mob money; however, instead of burying you in cement, they will have no qualms about throwing your butt in jail.
1040 Help Guide: http://www.irs.gov/pub/irs-pdf/i1040.pdf
Tax Credits for the Self-Employed: http://cfed.org/programs/seti/demonstration/SETI-%20Making%20Work%20Pay%20Flier.pdf
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