It’s tax season! Let’s go with some tax tips for self employed writers, , and for their small business.
The biggest question for people looking into freelance writer tax deductions is, “What writing business expenses can I deduct?”
The answer is ALL OF THEM. The IRS is going to tax you on every penny you earn, so you need to deduct every penny you spend on your business.
Of course, what you really meant to ask was, “Which of my expenses count as business expenses?” Hey, if we can’t parse language on a , where can we do it? Let’s jump in.
Writing Business Deductions
The 2016 Schedule C for Small BusinessesWriting Business vs Hobby
First, and foremost, let’s get something out of the way right up front. In order for any of your writing expenses to be deductible, your writing must be a business, not a hobby. The definition, as you can imagine, is rather gray, but the short version is that if you have a profit motive, then it is a business. If you don’t care if you make money, then it is not a business, it is a hobby. That doesn’t mean you have to be successful at , it just means that you have to be doing your writing for that purpose.
However, nothing proves your business is really a business like making a profit. In fact, if your business is profitable in three out of the previous five years, then the IRS affirmatively assumes that your business is legitimate.
If not, then the way you prove your writing is a business and not a hobby is by running it like a business. That means keeping records, registering your business with the Secretary of State (your state, not the federal one), submitting your work for pay, and so on.
O.K., assuming that you do have a writing business, what kinds of expenses can you deduct? Below, I’ve listed some examples of writing business deductions and their categories. Use these for brainstorming, and remembering the things you spent money on for you business this year. These are NOT exhaustive lists. Your writing small business is unique and your writer tax deductions will be as well.
If you use a credit card for your spending, and they send out, or let you download, an annual report of all your spending, get one. Then, go through it line by line. It’s tough to tell if a trip to Target was a business expense, but that monthly recurring charge for Adobe software most certainly is. Once you have a list, make sure you have the receipts and records to back up your deductions.
Easy Writing Deductions
The easiest writer tax deductions are those for supplies and materials for your business that you have receipts for. Yes, you need the receipts. No, you don’t have to turn in the receipts with your tax forms unless you get audited or contacted by the IRS for more information. Keep in mind, in order to be deductible, you have to use these things for your small business. If you use them for making snowflake decorations for your cookie club, then you can’t deduct those. (Unless you also have some sort of cookie business…)
Deduct Supplies for Your Business
- Paper, notebooks, notepads, journals
- Pens, pencils, highlighters, sharpies, markers
- Planners, calendars, organizers
- Calculators, label makers, scissors, paper cutters
- Toner, ink cartridges, printer supplies
- Books, magazines
- Memory sticks, memory flash cards, USB drives
Notice that supplies are by definition, consumable. That means that they have to be the kinds of things that get used up. You don’t have to have already used them up, but they need to be that type of thing. For example, a pen eventually runs out of ink and you grab a new one. A printer runs out of ink, or toner, and you refill it an keep using it for years. This is not a consumable, or a supply. For tax purposes, the toner is a supply, but a printer is a capital expenditure, which we get to next.
Deduct Office Equipment for Freelance Writers
Most technology and other tangible things that last more than a year are considered capital expenditures. They can (and should) still be deducted. If you are a big enough business, you actually have to depreciate these kinds of expenses over a period of several years. However, small businesses get a break and can deduct up to a certain amount of expenses without depreciating them each year. This is called a and , or your accountant can make sure the forms get filled out correctly. For a freelance writing business most of the is typically office furniture, and technology.
- Computers, laptops, tablets, printers, scanners, fax machines
- Desks, chairs, lights, filing cabinets, bookshelves, storage
- Software purchases (not rented, or monthly services – those go elsewhere)
- Space heaters, space coolers, window coverings.
Some things end up in kind of a gray area. For example, I use headphones in my freelance writing business. They are certainly deductible, but under what category? They aren’t really “equipment” and they aren’t really all that consumable either. I’ll probably keep a pair for a year or two. So, how should I deduct headphones?
Believe it or not, not everything is precisely defined for taxes. In the case of the headphones, you can probably consider them either supplies or equipment without getting into any trouble. As a rule of thumb, most things under $100 can be considered supplies, even if you can use them for over a year.
Remember, the IRS isn’t interested in splitting hairs about which section you used to deduct a $60 purchase, just that the purchase was legitimately deductible, so don’t get caught up in exactly where to place any specific deduction. If you get audited and have headphones under supplies, that won’t cost you anything, even if they determine that they are equipment, because the deduction is the same. Never let the fear of putting something in the wrong category stop you from taking a legitimate business tax deduction for your small business.
Deduct Services Used for Your Writing Business
In addition to THINGS you buy for your own business, you can also deduct services you pay for in order for your freelance writing business to operate. Save the invoices and cancelled checks or credit card statements. Remember you can deduct everything YOU PAY FOR during the tax year, so if you pay your web hosting costs for the year, you can deduct the whole amount, even if the last two months of the contract are in the next year.
Common service deductions for writers and small businesses:
- Web hosting, web design, domain name registration
- Subscriptoins software (like a subscription to Adobe CC, or Office 365)
- Rented equipment
- Internet access, cell phone, business phone line
Stuff like electricity and utilities are only deductible if billed separately or as part of a home office. We’ll talk about home office tax deductions in the advanced tax deductions section coming up later.
Deducting Travel for Your Writing Business
You certainly can deduct business travel, but don’t forget to also deduct local travel expenses. Your . Also, business expenses like parking, tolls, and other travel items are deductible.
- Airfare, hotel, car rental, gas (you usually do not deduct gas when driving your own car. You’ll use the instead, but you do deduct gas spent to fill a rental car when traveling on business.)
- Mileage, parking, tolls, express lane fees
- Booking fees
You do not get to deduct the value of any rewards or mileage that you use to pay for business travel, so consider whether that is important to you before booking your trip using your frequent flyer rewards or redeeming something from your .
Advanced Small Business Tax Deductions
Deducting a Home Office for Writers
Once upon a time, a deducting a home office was considered an “audit flag,” something that was more likely to trigger an audit. This was because certain professionals, mainly doctors, were fighting with the IRS about how and when a home office could be deducted. For example, a doctor might do all of his job at a hospital, then deduct a home office on the grounds that he didn’t actually have an office at the hospital.
These days, the rules have been tightened up, and a home office is no more of an audit flag than anything else is. The key for someone like a writer to deduct a home office is that it is a separate, defined space used for conducting business. Assuming you don’t have another office that you do most of your work from, chances are very good that your home office is legit.
The most common gotcha is for writers working on a long-term contract for a company. If they give you an office, and you go there most days, then that is your office and you can’t deduct a home office. As a purely freelance writer, I seldom set foot in most of my clients’ offices, so my home office is my only office.
Make sure you take advantage of your , because it can be a big one for offsetting otherwise brutal taxes.