Monday, December 26, 2011

Business as Usual - Tax Write-offs: Deadline Dec 31st

Disclaimer, I am not an accountant or even remotely knowledgeable about tax law, but I can add and I can subtract, and that’s just about all I need to know that I don’t want Uncle Sam (since he’s not really my uncle) taking 30-35% of my self-employment income every year.

There are several articles online in the writing community to help you with tax law, so I’m not going to address the topic of hobby writer vs. career author/freelance editor/artist, etc. If you’re receiving self-employment income, then keep detail records, talk to your tax preparer and exercise your right to claim legitimate expenses.

Now, don't get slap-happy and go on a spending spree. If your only income is from your self-employment gig, then you can’t spend it all on allowable expenses. I don’t mean the government won’t allow you to, but you wouldn’t have anything left to live on if you did! Unfortunately, we can’t deduct basic living expenses (food, gas, rent, utilities, clothes, kids’ daycare, car payments, etc.) from our Sch C.

Yes, I know you can deduct a percentage of those expenses for your home office, but my point is that if you’re 100% self-employed, you’ll end up with some income and have to pay that 15.3% social security tax, app. 15% federal income tax, and 3-7% state income tax.

Ouch. Ouch. Double ouch.

On the other hand, if you also work outside the home, and receive a W-2, you can push your self-employment income way down by purchasing much needed items and supplies for your home office.

Tip: Even if you don’t have the money to make a purchase for your business, in some cases you can actually save money by taking out a business loan to buy much needed equipment rather than handing over the taxes. I don’t recommend taking out loans lightly, but 5-15% interest rate vs. 30% taxes is something to think about.

So, hoping I haven’t muddied the waters too much, you have exactly 5 days to determine if you are going to be in the red or in the black on your Sch C for 2011. If you’re in the red, don’t worry about it. If you’re going to be significantly in the black, then you might want to lay out the dough for some items you can claim as expenses.

I’m going to loosely categorize the following into “Depreciable” and “Expensed”. Depreciable is anything that will last more than 1 year like a computer, a desk, or a printer. You can claim the entire expense for the item in the current year if you need to, but if you’ve whittled your Sch C Net Income down already, these “big ticket” items are the expenses you can spread out (depreciate) over a number of years.

Examples of expenses generally claimed in the current year:

Accounting software
Business Cards
Contests (anybody accepting entries right now?)
Donations (ACFW Scholarship fund comes to mind...)
Folders - 1/3 cut, hanging, box
Gift Cards / eCards from Amazon/B&N, etc. for giveaways later
Boxes for mailing books
Docking station for existing laptop
External hard-drive
Permanent markers
Ink cartridges
Memory Cards
Office chair
Packing tape
Plotting software
Plotting boards
Research Books
Storage bins
Writing software
Website design/hosting

Examples of depreciable expenses that can be claimed in the current year, or depreciated over a period of 5-7 years:

Desktop computer
Fax machine
Filing Cabinet

Here is an easy to understand article from a CPA Peter Jason Riley that goes into more detail on expenses, Section 179, depreciation, the home office, etc.

Also from this same site, look at the pdf of writer’s expenses. It’s a great resource that might jumpstart your mind on items you desperately need to make your writing life easier.

So, pull up a chair and sit a spell. I’d love for you to share your ideas of must have items for your home office.

PS…I won’t be able to comment as much as planned today because I’ll be traveling unexpectedly with my husband to look at a tractor, another item he desperately needs to purchase before December 31 for his Sch F! I’ll drop in as often as I can to see how the discussion is going.

Hey, today I'm giving away an e-copy of Stealing Jake or a grab-bag of print books off my shelf. To be included in the drawing, please remember to mention it in your comment and specify which prize you want.


Helen Gray said...

Have a cuppa coffee, everyone There's plenty for everyone.

Thanks for bring this practical topic to the front well before filing time, Pam. I have the expenses, but not the income. Hope to change that in 2012.


Carol Moncado said...

I'm with Helen. Expenses. No income.

I'd love to be entered for the grab bag since I've got Stealing Jake ;).

carolmoncado at gmail dot com

Pam Hillman said...

Can you believe I'm still up? Hand over the coffee, Helen, and no one will get hurt! lol

I bought dh the DVD "Sheffey" for Christmas and we started watching it about 9:30, and it didn't finish until 12:06. We really enjoyed it.

Carol, you're down for the grab bag. That Jake sure gets around... lol

Speaking of having expenses without income, I've been filing a Sch for several years and in many of those years I've had a loss.

But I did have proof that I was pursuing publication and had small amounts of income sporadically.

Talk to your tax preparer about those existing expenses. If you are actively writing, submitting to agents and editors, entering contests, and attending conferences, you can file a Sch C.

You'll show a loss, but that will flow directly to your 1040, and help with your tax refund.

I started several years ago when I had a home-based printing business and that morphed into a small bit of writing income.

Ausjenny said...

wow I am so glad our tax season is from July 1 to June 30. adding tax season to this time of the year would be a nightmare.

Jackie said...

I'm with Helen and Carol, expenses and no income, but I still found this helpful. Maybe 2012 will be our year.
I loved Stealing Jake, by the way.
Thanks for posting!

Ruth Logan Herne said...

Helen, Jackie and Carol, I'd love to see that change, too! And I spent a lot of years that showed losses and no income or very little income. But that will change, my friends! Stay in the game!

So glad to be back at Seekerville after a fun-filled but crazy busy weekend.

We are blessed to be Americans. That's all I'm sayin'...


I love this and need it so much. Mandy has taken over doing my spreadsheets for me (she's my beautiful niece and goddaughter who is willing to travel to exotic places with me to help me research.)

If you call upstate New York exotic, that is.

Anyway, I keep my receipts, I put them in a big envelope, and she puts them into the spreadsheet for me. I might have two CPA sons, but I suck at spreadsheet software. Heaven only knows where their talent for numbers springs from!

She picks them up quarterly and enters them. That way it's not overwhelming in January. And we do this NOW because I've overwhelmed her in the past... So we learned our lesson and I'm passing that info on to the lot o' youse!

This way works better and leaves me time to be creative. And she separates them out into the tax columns: Travel and entertainment, supplies, utilities (because I do claim a home office so 15% of my housing bills get deducted now) giveaways and donations, promotion, software purchases, postage, Internet security, etc.... If you look at a tax form, you can easily (you, not me, we've already ascertained that I'm spreadsheet techno-challenged) see how to divide up most receipts. Then at tax time it's a simple matter of moving the figures from your spreadsheet to the tax form.

Pam, thank you, thank you, thank you for this timely reminder.

And would someone please eat the rest of these cookies????

Pretty please?

Rose said...

Good Morning, Everyone.

Very timely article Pam!

I keep an Excel spreadsheet for my Income and Expenses. There have been many, many, many, many years that my expenses were more than my income!

This year, I've decided that I should be including a percentage of my internet provider bill since all of my writing work is submitted via email.

Have a great day!

Sandra Leesmith said...

Pammers, Great topic and timely.

Lucky you AusJenny with taxes in July.

Hey, as long as you're pursuing writing for income, you can deduct your writing expenses. DO IT. It helps tremendously with those taxes because Schedule C comes right off the top, unlike A which is a percentage.

Go to your local IRS and make an appointment. They will explain all you need. They are so helpful. Do it now before they get swamped.

You need good records.

My tax accountant advises not to take office expense unless you do actually have income just because its a red flag. But the Internet, cell phone (so I can get "the call" from the editor), all those writing supplies, every book you buy, and any travel expenses for trips you take for research.

The IRS even allowed me to take a portion of my motorhome since I write in it and use it to travel for research.

If you get audited (which I did twice) you just need to take all your rejection letters. That proves you're pursuing writing as a career--not a hobby. If you do get audited do not be fearful. Every time I went the auditor showed me all the ways to legally claim my deductions and how to keep my records. I ended up with a better return. smile

They are really nice people if you're nice. Honest and sincere.

Sandra Leesmith said...

Oh yes, because every editor and publishing house says at conferences and in their guidelines, "If you want to be published by us, read our books so you'll know what we want."

Well folks, that gives you the right to claim every novel you buy as a business expense.

You can also claim how to books, travel magazines (for settings), etc.

Pam Hillman said...

Jenny, I'm so with you! A business aquaintance set his corporation up with a July-June ending date. Since his business is to do with heating equipment, it is so much easier for them to get their paperwork together than December is.

But they still have to reconcile inventory on December 31st like everyone else. Weird.

Ruth Logan Herne said...

Rose, I claim 50% of my Internet and 50% of my cable bill because so much of my info for contemps comes from these things. My Internet (like yours) is shared with personal stuff, but the 50% is a sizable deduction over a year. And reasonable.

And don't forget travel for booksignings (I keep a mileage count from HERE to THERE), research, interviews, writers' meetings, mini-conferences. Those mini-travel expenses often add up to several more hundred dollars in my pocket as a write-off. And they're crucial to business.

Unlike my M&M's.

Pam Hillman said...

Oh, I'm back! Can play for a little while until we leave to go look at the tractor.

I have my son's old ipod touch and am about to see if I can hook to the 'net with it, so I can play with y'all while dh drives.

Fingers crossed!

Scarf! Scarf!!!

Cookies have joined the other 10 lbs I've gained in 3 days. Sigh.

Biscuits, ham gravy, bacon, eggs, and Helen's coffee and tea on the sideboard. Dig in, everybody!

Pam Hillman said...

Thanks Jackie, so glad you liked Jake! Hey, are y'all members of the ACFW Book Club?

The club is reading Jake in January and will be discussing it the last two weeks of the month.

It's free to join, just send a blank email to:


Pam Hillman said...

Ruth, glad to see I'm not the only one who filed for several years with a loss.

Oooh, Ruthy, thanks for adding to the list.

A tip for you and Mandy: Using online banking, I can download my checking account to an excel spreadsheet, so it's already entered. Then all I have to do is add a column for which expense it is. I haven't seen the need to graduate up to Quickbooks or any other banking software. An excel spreadsheet works fine.

Also, I use the same account for personal and business. I don't have enough business to need to separate them.

Pam Hillman said...

Yes, Rose, internet provider service is deductible. Spam software. Alphasmart.

Oh...just remembered.... if you plan to purchase something b4 Dec 31 as an expense for 2011, don't put it on your credit card since your credit card bill won't arrive until after the first. If you do use your credit card, go ahead and write the check for the amount of the business expense. Just sayin'

Julie Lessman said...

Gosh, PAMMY, I didn't know about the depreciable items that can be claimed over a period of years rather than all at once -- thanks for the tip!

Happy NEW YEAR, all!!


Laney4 said...

Since I don't have an e-reader, I'll go with the grab bag of print books please.

I find it easier to share print books with my girlfriends, as I have a list of what each friend enjoys reading, and I split up the books I have read to share with them. Might be a tad difficult with an e-reader....

I too am self-employed and have been doing my own taxes since I started to work in 1974. I enjoy using the computer programs for help, as they have often found me never-before-used ways to get more money back. For instance, I had no idea I could apply a business loss from this year to a previous year's income tax profit and get some of that money back! Bonus!

pol said...

Gee reading your post is always a learning experience for me, great minds sharing, I like it. I am so not ready for the tax season-never have all my stuff together. You all seem so organized.
I would like to be in the drawing for a grab-bag as I dont do e-reader stuff.
thanks for sharing
Paula O(

Missy Tippens said...

Great reminder, Pam! I just bought a new computer chair. :) Need to locate that receipt!

Missy Tippens said...

Ruthy, can I borrow your niece??!!

Pam Hillman said...

Sandra, glad you chimed in! Not happy that you were audited, but at least you had a positive experience.

A lot of this is just good record-keeping and common sense and asking questions of your tax preparer. In the early years, those records might be in a shoe-box or a clasp envelope. That's okay.

Janet Dean said...

Thanks for the tips, Pam! I leave all the tax stuff to my d/h. Will discuss all this with him.

Helen, Carol, Jackie--all you hardworking Seeker buds--I'm hoping 2012 will be the year of The Call! Can't wait to see how many sell!!

Did everyone have a lovely Christmas? And have the pounds to prove it. :-) The sunshine is calling me. Off to take a walk.


Pam Hillman said...

Sandra, I've never taken a percentage of my home expenses (utilities, insurance, etc) before, but will this year since I'm officially setting up a separate space for the home office.

Today's post came about because our house was swamped with paperwork. I lobbied for a new office (dh is a carpenter), but it hasn't happened yet. So, in the meantime, the breakfast room will do nicely since we never use it anyway.

Dh and I both work public jobs and we're both self-employed. I'm running 3 self-employed businesses from home, so it was way past time to create a space. hindsight, this is perfect. I can set it up, decide what works, and what doesn't. What I like and what else I'll need, and a more permanent office space can be the 5-year plan if I decide I need to redo.

Gotta put a positive spin on the fact that my carpenter husband has informed me for years that you CANNOT add on to this house. It is impossible from any angle to hear him tell it. lol

Pam Hillman said...

Ruth, thanks for your run-down on how you claim your internet/cable usage.

This gives me an idea on how to divide and conquer without pulling my hair out! lol

Pam Hillman said...

Typing from the iPod. Slow but fun. Pam

Mary Connealy said...

We talked about adding an office onto our house and our accountant said structure like that can only be depreciated over THIRTY YEARS.
The tax advantage of it are so minimal we dropped the whole idea.

Pam Hillman said...

Julie, yes ma'am! I depreciated this laptop for about 5 years because at the time I had itsy-bitsy income, but needed the laptop, and I was hoping for income. Always hopeful! lol

Learned most of what I know about taxes because of dh's farming enterprize. Use Sch F for farming though.

Depreciation is strange, but if you buy a big ticket item and need to spread it out over a few years, your tax preparer can earmark a certain amount in the current year (called Section 179) and then set the rest up on depreciation for 5-7 years.

Also, depreciation works best if you have several depreciable items staggered to end at different times. Obviously, we have more of those big ticket items on Sch F than we do Sch C right now! lol

Mary Connealy said...

Keep your rejection letters, contest entry forms. Things like this prove you are pursuing PROFESSIONAL publication. Not just doing it as a hobby. And that's what the IRS would accept as proof.

Pam Hillman said...

Laney, thanks for this additional tip! I've heard of it, but never utilizied it. Dh might be able to use that this year on the farm.

I too did our own taxes up until about 5 years ago. Then my oldest turned 18, had a little savings, worked in two different states, joined the army and I decided it was time to get some outside help.

The good news is that I was pretty much on track with doing it all correctly, but it's great to have someone else to field my questions.

Bridgett Henson said...

Pam, you've given some great advice, but since I don't like to think about taxes until April. (February at the earliest) I'll refrain from making a comment that will show my ignorance.

Please enter me for the print books. I own an ecopy of Stealing Jake. By the way, loved it.

Pam Hillman said...

Mary said: depreciated over THIRTY YEARS.

Yikes! Man, am I glad we had this discussion today!! I bet you're totally right, Mary. I'll ask my CPA about that too.

And now dh can say he was right all along. Grrrr!!!

But on the flip side, I'm not going to be able to depreciate any of the actual "room" I'm in, unless I painted, got new blinds, new flooring, etc.

Still, good to know. I'll tuck it in and see.

Yay!!! Did y'all see that my test post from my ipod came through??? My son helped me get the facebook app and the twitter app on there, so hopefully later today, I'll be able to wave at y'all while we're travelling. Taking my mifi hotspot with me, so I should have internet access some. Can't promise though.

Is there a Seekerville app? Tina, we need an app!!! lol

Pam Hillman said...

Okay, I've got to stop playing with y'all and get all my gadgets ready to travel with dh.

Blanket, neck pillow, laptop, ipod, Kindle, phone, earplugs.

I'm set...


Hope he feeds me while we're gone.... those cookies are beginning to fade a bit.

Keep up the questions and tips. Loving it! I hope I can check back in later.

Ruth Logan Herne said...

I think we've got two different 'depreciations' here. Mary, you're talking about construction depreciation of real property like a house/barn/garage/addition...

But if you just appropriate a room as an office (no bed, no dual purpose) then you can deduct that percentage of your home expenses (utilities/taxes/repairs) off your taxes because your "office" is part of your home.

So if it's 150 square feet (office) of a 1500 square foot house, your deduction would be 10% of taxes/utilities/repairs and 100% of any improvements you made to that room in particular.

Like mold killer.

I'm just glad to be of help, dear.

Jan Drexler said...

Oh, thank you Pam and everyone else for sharing their expertise!

I actually have a bit of writing income this year and some expenses (computer, books, etc.), so I'll be looking into filing appropriately.

And practicing for next year when I'll have a much larger income... (that's positive thinking talking, nothing definite!)

My dear husband and I have already decided we'll need to call in professional help this year - between relocating, taking a loss on our house sale, two children in college, my writing business... yup, it's time to make the acquaintance of a CPA in our new city.

Meanwhile, I think it's time to brush up on using Excel...

The weather is great here today - highs in the 40's - anyone want to join me for a walk?

Jeanne T said...

Great post, Pam. So much helpful information, and I appreciate your lists. :) They help me. As has already been mentioned, I too have expenses, but no income. Yet. So, I'm keeping this post handy, just in case I need it next year at about this time. :)

Jeanne T said...

Pam, I forgot to mention. I'd love to be in the drawing for the grab bag. Haven't finished Stealing Jake yet, but I'm enjoying it as I have time to read!

Pam Hillman said...

Eating at hinbachi grill. Typing hard on this little screen. Rugby Mary was talking about new construction...ur right...existing space can be turned into an office.

Wish I could reply to all.

Small sreen

Anonymous said...

Hi Pam,
I have the fortunate/unfortunate ;) luck of being married to a tax man. The past three have been lean years when he reminds me that my writing is falling into 'hobby writer' level rather than the govt's 'working writer' parameter.

He's very supportive of me though and patient too as I try to make this jump from non-fiction to fiction, but my income has plummeted now that I'm not taking on freelance work. This is the year (2012) when big things will happen, or I will be making major adjustments to my job status. It's in the Lord's hands. All I can do it write!

As far as the giveaway, I share books with a local nursing home, so I am open to either/any you might provide. Thanks for the great post and your generosity.


Melanie Dickerson said...

Pam, I definitely need to read this, since I am completely clueless, but I better get my word count in first and then come back! LOL!

Hope you had a wonderful Christmas, Pam! Over there on your 40-some-odd acres in East Mississip. Thanks for this advice!

Pam Hillman said...

Lyndee, thanks for sharing! Wow, we need your hubby in here to answer our questions!

Pam Hillman said...

That did NOT say "Rugby" when I sent it from the ipod!

Really, Rugby, it didn't!

Pinkie swear!

Jan Drexler said...

Pam, thanks to you I spent the afternoon digging through old receipts and finding writing expenses to enter on an Excel spreadsheet.

I do mean thank you! Without your gentle push I would have been doing this in April instead of December!

I forgot to say earlier - please put me in the drawing for the books. I have "Stealing Jake" in my keeper file on my Kindle :)

Anonymous said...

Actually, Pam, I did ask him about some of your advice and his response was that you are conservative. So that's probably a good thing, right? As he put it, the idea is to not get audited, so conservative is a good approach.


Cara Lynn James said...

Thanks for the necessary info, Pam, although I can't say taxes are a pleasant topic. I'll give it to my husband because taxes aren't my job. He thanks you.

Tina Radcliffe said...

This is EXACTLY what I needed to read as I prepare to close out the books. Thanks, Pam

Pam Hillman said...

Lyndee, thanks for checking with your hubby!

I am conservative, but I try to be thorough and do my best to abide by the IRS's rules. If I'm ever audited, I want to be able to provide proof of all my expenses.

But on the flip side, I also want to take expenses I'm due too.

Pam Hillman said...

Jan, welcome to the dark side! lol

BK said...

Thinking about taxes makes my head hurt, so I would just like to say that I love the highlighter picture.

Should I admit that I have a highlighter fetish? Must come from all those years of doing research and highlighting in my books....

Pam Hillman said...

BK - too funny! I liked the highlighters too!

Lyndee's comment from her husband about being conservative is probably more reflective of my minimal self-employment income up until this point rather than about being a big spender. lol

Seriously, there are many, many other expenses that you can claim depending on your level of income and your needs.

Off the top of my head, here are some ideas...not that I've been able to implement any of them:

Research trip to Ireland. Yeah, baby!

Writing studio with ALL the latest gadgets.

Your own coffee shop / book store. Can we say Nora?

Seeker writing retreat. A cruise comes to mind.

A 2nd home used as a writers' retreat for paying customers.

Full-time secretary or VA.

I'm sure I can think of more, but I really don't need to dream too big!

Loves 2 Read Romance - Laura said...

Hi everyone! I feel your pain about taxes but I have the job of keeping the CPA on track since I work as his office manager. I always get the week between Christmas and New Years off and inform all my friends and family not to count on me remembering anything for anyone or having a functioning brain by the time we get to April. Keep your records clean and organized and your CPA/tax preparer will love you for it. I always cringe inside when someone walks in with a box or bag stuff full of papers that you can tell are in no particular order. Have a good night everyone!!


Cathy Shouse said...

Making a quick comment before midnight so I might win a book.

Cathy Shouse said...

Making a quick comment before midnight so I might win a book.

Jaimn said...

Oh yeah, I guess that it has been almost a year since I took writing from "huh?" to "I'm going to get published!". My DH's tax preparer enticed me with all sorts of "you can deduct this and that". Thanks to Pam and everyone else for reminding me to get back to work.
I've not yet read Stealing Jake, though I've heard so much good about it (and not just here!). Please add me to the contest, and have fun with that new tractor! :)

justin _ autumn at msn dot com.

Pam Hillman said...

Cathy & Jaimn, thanks for stopping by. The tractor seems a real possibility.

Personally, I have started pretending I know not how to drive a tractor, rake, bale, or haul hay.

I'm about 25 years too late though.

Faye said...

Taxes scare me. It's always great to get some advice on this puzzling topic. Thanks, Ms. Hillman :) I'd love to read your book :)

Edwina said...

Great post with lots of helpful hints! Thanks so much for sharing!

Janet Kerr said...

Wow, lots of write offs! Thank for the information.



Joy said...

Ugh. Taxes. I hate them, but they have to be taken care of. Yes, we try to keep a list of things that are bought for me throughout the year with receipts. Not fun, but like I said,it has to be done. I have no tips or advice, but will be reading to see what others have to say! Would love to win a couple of your books! jumpforjoy at gmail dot com

Pam Hillman said...

Faye & Edwina, thanks for stopping by. I thought I had this marked for follow-up comments, but apparently not. Oops!

Pam Hillman said...

Janet & glad you stopped by.

No tips for us? I'm running out of ideas! lol