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:
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
Examples of depreciable expenses that can be claimed in the current year, or depreciated over a period of 5-7 years:
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. http://www.artstaxinfo.com/WRITERS/WRITER~3.PDF
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.