Keeping Track of Deductible Expenses

Today, the ongoing Wednesday series on managing the legal side of your writing career takes a look at an important tax issues many authors struggle with: keeping track of deductions.

First, a disclaimer: this post is not, and should not be construed as, legal or tax advice. Consult an accountant or licensed attorney for assistance with your personal tax issues, including (but not limited to) legally permitted tax deductions.

Today’s post isn’t about what you can deduct – that varies based on your personal situation, writing income* and other factors. Instead, we’re looking at some ways to document potentially deductible expenses, to ensure you don’t lose or forget to declare permitted deductions when tax time comes.

1. Create physical and electronic files for writing-related receipts and expense records, and keep them separate from your other tax deduction records.

Keeping your writing-related expenses and receipts physically separated from your other tax files helps you determine how much you spent (and what you spent it on) at the end of the year. Since writing income and expenses are typically reported on a separate schedule from other types of income, keeping the receipts separated saves you time and confusion down the line.

By creating both a physical file and an electronic one for each tax year, you ensure that neither printed receipts nor electronic ones fall through the cracks and escape.

2. Write notes on each receipt, detailing where and why the expense or cost was incurred.

You may believe your memory is good enough to recall exactly why you thought that restaurant receipt belonged in the file with your deductions, but memories fade. After a year (or even several months) you may not remember whether that receipt represents a meal you had with your agent, eating out while attending a conference, or a meal you paid for at a MWA or RWA event.

When talking with your accountant (or preparing your own taxes, if you do), you’ll need to remember exactly why an expense was incurred in order to determine (or help the tax preparer determine) if it’s deductible.

Every time you receive a receipt, make a note–on the back, or in the margin–detailing the date, location, and reason you incurred the expense. If necessary, also note how that expense relates to your writing.

Then, when preparing your taxes (or, if necessary, in an audit) you’ll have clear recall of the reason you incurred the expense and why you believe it qualifies as a tax deduction. 

3. Learn what is, and is not deductible.

Yes, this sounds like work, but it’s important. Many authors–and small business owners in other industries, too–lose out on tax deductions because they don’t know what they can (and cannot) deduct. Others suffer unnecessary audits (and penalties from the IRS) for the same reason.

If you don’t know what expenses a writer can (and cannot) deduct, and when, consult an accountant or attorney in your state. It’s worth the cost of an hour-long meeting to educate yourself.

In some areas, lawyers and accountants offer tax training sessions (usually free) for small business owners. These may or may not apply to authors and artists, so check with the host before you plan to attend.

Taxes are a stressful topic for many people, including writers, but with a little education and planning, you can keep yourself on track.

*The IRS has a published list of factors it considers when determining whether income-producing activities are “businesses” or “hobbies.” In 2014, the tax court ruled that an artist who otherwise meets the “business” test but does not make a profit within the time period generally required by the IRS may still have her art considered a “business” – but in every case, the determination is made on an individual, facts and circumstances basis.