Tax Tips for Writers

Computers and all those gadgets

 

This is a big subject, but I will try to keep it general and brief enough to give you details but not overwhelm you with information. Can you write off your computer and all the little gadgets that attach or work with it? Absolutely – even if you didn’t buy it this year, you can write off a computer and all its supplies and peripherals.

 

First, let’s discuss when to write it off. If you bought it in the current year that you are dealing with your taxes, then that is simple – get the receipt and write it off. But if you got it in the prior year[s] – we use a law that is allowed by the Internal Revenue Service called ‘Placed in Service’. Well, since you have never written it off before, then the current year is the year placed in service – for your business. You cannot write off the full new price if it is more than a couple years old, but you can write off a large chunk of it. If you bought it in a prior year, you will have to allow for a reasonable amount of depreciation or get an estimate of replacement value. Those are things you should discuss with your tax person.

 

What items can you write off? A general list would be:

• The actual computer, monitor & attachments that came as the packaged set
• Additional items you purchased to go with the computer, such as printer, camera, flash drives, desk, carry case and speakers.
• Things you use with your computer such as paper, toner, software, power cables.
• Internet provider service, whether a sole item, bundled with your cable or bundled with your telephone service.

 

How much can I write off? This depends on whether your business made a profit or not. If you have a profit, you can write the whole entire computer off using something called a Section 179 Depreciation deduction. But if you don’t have a profit, then you must depreciate the computer and take a little each year, generally for five or seven years. But this is only for items that cost $250 or more. Each item that you purchased; such as the desk, software, carry case or printer should be written off separately. There are no limitations on how much income you made in order to write off the smaller items. A rule of thumb is this: if it cost over $250, it is an asset and should be written off over a period of years or as a special Sec. 179 deduction. If it is under $250, then it is an expense and should be written off in the year purchased or the year placed in service.

 

There are so many different places and ways you can use your computer as a write off, so in each individual case you will have to ask your tax prep person where it goes on your return. This information is for general discussion use and should not be taken as advice on how to prepare your own tax returns. Yep, I always got to throw that little CYA in there!

 

Deducting Telephone Expenses from your Taxes

The telephone, while annoying in its ability to interrupt you at the most inopportune moments, can be a useful tool and an expensive one as well. This is one tool that you must absolutely deduct from your tax return! 

Is it deductible? Of course it is deductible, but there are many little hoops you have to jump through in order to establish that it has a business use. Many people often ask me if they can deduct ‘part’ of their telephone bill from their taxes. A lot of the times, I have to say ‘No’ because all they have had in the past is one single phone line in their house. The law states that if you only have one phone line that is partially available for personal use, then you can deduct none of it unless you document every single phone call to determine which portion is business related and which is personal. I do not know many people who can do this or is willing to try. No, you are NOT supposed to use a percentage of your personal phone bill. You say you have been doing this for years? Generally, this will not stand up in an audit and it will be thrown out as an unusable deduction. There are always exceptions to the rules and I could probably argue this in your favor if you got called on it, but the ‘letter of the law’ can go either way. 

What you CAN deduct, if you only have that one line – is any long distance charges that are separate from the standard phone bill. That is easy enough to substantiate if you gather an entire year’s worth of bills, add them up and deduct the basic rate charges. Also, if you have a separate DSL or Dial Up charge for your internet service that is included on your personal phone, you may deduct it also. 

Now. This is the future. Most people have not only the one basic phone line, but a second line in their homes, either for their computer, their fax machine, a teenager or otherwise. If you have TWO or more lines in your home, then all except for the basic rate of the first line is deductible. Hopefully your phone company has the snap to list the two charges separately, although they do sometimes get a little confusing with all the taxes and surcharges they throw in there. Some people even go so far as to have two [or more] different phone bills sent to them.

Now for the cell phone. Let’s just say for general purposes that you have a home phone AND a cell phone; although people are starting to give up their home phones completely. If you go by the letter of the law and have only one phone and it is your cell – then you cannot deduct it. However, if there is another phone in the household, it does not matter if it is in your name or that you are paying the bill – you can deduct the cost of the cell phone service. No, you are not supposed to deduct just ‘half’ the bill because ‘I use it half the time’ for business. You deduct all of it. The only time you would deduct only a portion of the mobile provider bill instead of the full amount is if you are sharing one of the multi-plans with a significant other or child. Usually, you would deduct the cost of the full base rate for service and omit the second and third add-on charges for the spouse, child or whatever. For example, one plan that is quite popular costs approximately $100 per month and includes unlimited texting, photo sharing, turn on your coffee pot and more bells and whistles. Then, for an extra $10 a month, you get a second line for that other person, maybe even a third! Remove the $10 and you have your deductible amount.

Where do I put all this on my tax return? There are several ways and locations where this deduction can go – on a Schedule C, on form 2106, directly on the front page of the 1040 and also directly onto the Schedule A for itemized deductions. Those are not the only places where phone charges can be deducted, but generally they are the ones that would affect this target audience. As always, each person has an individual case and this information is to be used for discussion purposes only. Please do not use this information as substantiation for a deduction you are taking on your tax returns; but do contact your own personal tax person for proper placement of any deduction that you would use on a legal tax document.

Tax Tips for Writers

The following is a brief [sort of] discussion on Travel and using your expense as it relates to your writing.

 Many people ask me if and how much they can deduct for traveling. It’s an individual case-by-case discussion that is needed, but in general, yes, you can deduct your travel as it relates to your writing. Now, how do you do this? First, you have to determine one main question for discussion: What is ‘Ordinary and Necessary’? In the 2009 Standard Federal Tax Reports, paragraph 8520.026, they describe it thus: ‘Whether an expense is ordinary and necessary is based upon the facts surrounding the expense. An expense is necessary if it is appropriate and helpful to the taxpayer’s business. An expense is ordinary if it is one that is common and accepted in the particular business activity.’

 

 This is more for the beginning writer, so if you are a seasoned writer, you may wish to tune in to a later post. So what do you write about? Are you doing research on a particular area [mountains, beach, city, country, woods] so that you can get the ‘feel’ of the place? Are you eating at a certain restaurant so that you can sample a type of food, service or décor of the place? Or are you attending a conference, such as Stories of the Heart [Feb 2010], so that you can improve your writing? All this is Ordinary and Necessary.

 

Let’s back up now. What do you write about? First of all, treat it like a business. Tell yourself, ‘I AM A WRITER’. There, was that so hard? Now write it down. That is the beginning of your business plan. The Internal Revenue Code describes your activity this way:  A ‘Trade or Business’, although not defined in the tax law, has been characterized as an activity carried on for a livelihood or for profit. A profit motive must be present and some type of economic activity must be conducted. 

 

The next line of your business plan will be something like – ‘I am going to write poetry about beautiful parks in our country’; or – ‘I am going to write my memoirs and will need to go back to [insert place] several times so that I can see what it is like now, see if it sparks any memories’. Yet another could be something simple as ‘I want to write about traveling with two young children, 6 cats and a dog.’ You can be general about this at first, and always add to it later.

 

Second step in the business plan is identifying who you are writing for. Or what market do you want to target? Here are some suggestions of what you should write into your business plan:

 I want to write/sell a Fiction/Non-fiction book about [insert topic such as romance, thriller, murder, travel, quilting, horses, Dementia, a person].

I want to write poetry/magazine articles for a periodical(s) – such as AARP, Outside, New York Times, The Community Sun, etc

I’m writing children’s’ books.

I want to publish my memoir.

 

OK, now you are totally confused – but keep it simple at first. And general. I will mention the Business Plan and Ordinary/Necessary several times as they relate to several topics in the future. We’ll head on back to travel, the category we started this discussion with. What can I write off? Here is a general list of all you can write off:

 

Vehicle(s) and all related expenses – including RV’s, cars, boats, airplanes, boats, parachutes, trains and more.

Hotel or space use fees [slips, berths, rooms, campground fees, etc]

Meals – either the actual expense or a per diem rate.

Entry fees: museums, art galleries, park fees, golf course, amusement park, state fair, tram rides, etc.

 

Other expenses you incur along the way are discussed under a different topic – such as photos, suitable clothing, souvenirs, phone calls, gifts, books, samples and general supplies. These are NOT considered part of your travel, but can be O/N.

 

Where do I put these on my tax return? If you are just an individual, the easiest way to handle them is to include them on a Schedule C of a regular Form 1040 tax return. But there are other options such as Partnerships, Corporations, Non-Profits, Limited Liability Companies and more. Those of you that are already writing off your expenses – and hopefully selling your wares – may want to consider forming a Limited Liability Company, simply for the depth of CYA it gives you.

 

Income. Tough to come by these days. Do you have to show income when you start writing off your writing expenses? Absolutely NOT. At least not at first. This will be discussed later under the heading of Hobby Losses.

 

As always, before attempting to use any of this general advice, you should talk this over with your tax preparer to be sure you are fully informed of the tax implications and how they relate to you. This column is to be used as a general reference and is not a specific guideline for you to use unless you are fully informed in the proper use of these types of income and expenses. In other words – don’t try to do this yourself – but DO ask someone to help you and DON’T be afraid to use the expenses that you are entitled, by law, to use.

Tax Tips for Writers

I’m working on a series of small posts about tax tips for writers and also the general public – however, I don’t have any of it ready to post right this minute. Therefor, I am going to send you to a link on one of my beginning posts that started this blog, way back in Feb of 2008. Follow this link: http://resakov.wordpress.com/2008/02/20/tax-tips-for-writers/

or you can just click to the right on the Category of ‘Tax Talk’ and find the 2/20/08 post.

Oh, and here’s another Buzzard picture to go with the post below this – creepy, but oh, so fitting for the Halloween season! You may have to click and enlarge the picture to see the detail more clearly, and yes, the top is almost concealed in a fog cloud.

Happy New Year!

I want to wish all my friends and family a happy and prosperous New Year. Many people at this time of year set out to make new resolutions, often failing in their attempts to keep them. Instead of making a new resolution this year, I am going backwards. I am going to ‘finish’ the old year. Instead of starting new projects, I will put the finishing touches on old projects. I don’t need to pick up a new book, I have old ones that need to be finished or reread, some even need to have their reviews finished. Instead of finding a new craft project to start, I will pick up one of the projects that I haven’t completed and finish it. I hate to admit that I have several of these, so it may take some serious time to complete them to my satisfaction. Among them are a rug, a crocheted afghan, a couple of weaving projects, a crewel embroidery project that my mother left half finished before she died, a scarf to knit, two pillows to make, a small pieced quilt for my son and half a dozen unfinished ceremics that need final coats and touch-ups of paint. That’s just handicrafts – the writing too has several directions I can take. My memoir has two new chapters that need to be fine tuned and added to the manuscript. A great poem needs polish, a magazine article needs to be edited with photos added [and sent in to the editor!]. More chapters can be written in my two fiction pieces – one a sci-fi/fantasy piece [see Tales of As'r here in the blog], has outline that can be fleshed out and added; the other [see Tales of Dina] has a couple of short stories that are hand written and need to be added to the computer.

And work can’t be forgotten! After an entire year has passed, I still have a couple of tax returns that require a little more client input before I can finish them. One more contact with the clients can’t hurt if it gets me the info I need so I can get these out and I can finally say, “I’m done!”. After all, this week all the new returns will start pouring in, starting with W-2’s and payroll taxes, then quickly following with tax returns that need to be filed quickly so people can get their refunds or at least prepare themselves for the blow of what they may owe. This is going to be a tough tax season I feel as many people lost much of their savings and investments, lost their jobs, their homes and, in some cases, the lives of loved ones. I’m personally in the same boat with nearly all of the above. My husband is unemployed, we’ve lost much of the value of our retirement and other investments, many friends and family have died and money is tight.

More on the work front includes planning and setting up my pieces of a Shotgun Instructor class that I am assisting with this month and assisting in setting up a Mountain Man Rendezvous complete with period costumes, black powder guns and wilderness skills.

Above all, I need to find a way to make more money and get insurance for my family. Although I have the certifications, hands on skills, college degree and more for a variety of jobs in business management & tax law, my age and lack of current work in the public sector makes it hard to come by a good job with the economy stressed as it is now. There are just too many people [younger] out there that are willing to work for less wages because they too are starving and losing their homes and needing money to put into retirement.

Not only do I need to clean house with unfinished work – but I literally need to clean house. Months and years of pack rat accummulations need to be sorted and either put into good use or disposed of. Old files need to be shredded; but require fine review before they meet the teeth of the shredder. Old clothes, blankets, coats and boots need to go to a deserving charity. Old chipped or broken things need to be mended or thrown away. Books need to be sorted and in some cases, recycled. This is one chore I will LOVE – since it means I can replace them with other books.

So, instead of diving into a New Year with new work – I am going to clean the slate and finish the old. It is so refreshing to complete something that has been sitting there emitting a little weary cry in the back of my mind “Finish me…..”

Tax Tips for Writers

Tax season is keeping me busy, but I am not overwhelmed with work yet as I have been in past years. That will come at the end of March. One thing I have noticed the past year is that I am talking to more writers and getting asked many questions about what they can and cannot deduct from their tax returns. Here is a simple guideline to go by. If you have not set up any kind of business/corporation, you may still be able to write off deductions. In order not to be treated as a “Hobby” and get your deductions disallowed, you first have to treat your writing as a business which has a purpose to eventually generate income. You may still have losses for many years but it’s a good idea to start showing a definite, regular income after 5 years. You can do a little research on line or visit one of your local tax professionals to discuss the Hobby loss rules, which are numerous.

What kind of deductions can you write off? First, let me take the big one that most people think they CAN write off – that being part of their home, utilities and telephone. It’s an easy one – if you have income to offset the home office, you can use it. (Research ‘home office use percentages’) If you do NOT have income to offset, you can NOT use it in a home based non corporate business.  Rental of an office or even a second home used expressly for the purpose of writing is allowed.

Telephone. People always want to write off their telephone expenses. For a home office, if you only have one home phone and use it both for personal and business use, then NO, you cannot use it. If you have a SECOND line, such as a business line or a line for your computer (DSL, Broadband or dial-up); then you can write off your second line and any long distance charges that are business related from the first home line. Same goes for a cell phone. If you have a personal home phone and the cell phone is a SECOND seperate charge, then you may use the cell phone.

The above information should only be used as a general guideline for you to use in your research or discussion with a certified tax professional. If you are not trained in these matters, you should not use this information without consulting with a professional nor should you use it as a tool to avoid paying taxes or any penalties.

Coming up next time: What type and how much travel expense can I deduct? Can I fly to some exotic place such as Rio, Africa, Venice or just the French countryside and deduct the costs? What about the costs of tour guides or the costs of my spouse/children or other family members that go with me?