How to Deduct Expenses Writing Income

Do you have a HUGE tax bill every year? IF so there are ways to lower that tax - are you: Self employed? A Writer? Passive? Active? Hobby?

Using Turbotax or a tax preparer that is experienced can save on your tax bill. IRS says that ALL self employment income is to be reported and taxed. Now more than ever you need to deduct all LEGITIMATE expenses.

If you generate more than $400.00 NET income you will want to revisit your deductions with a tax professional so that you can understand all the fuzzy areas and minimize your tax liability.

Difficulty: Moderate

Instructions

Things You'll Need:

• 1040 schedule C AND
• SCHEDULE SE
• TURBOTAX, TAXACT OR OTHER SOFTWARE
• You can do it without software but why? tax software is a deductible expense.

1. 
   TAX SOFTWARE: Writer income

   TAX SOFTWARE: Normally you will fill out schedule C as sole proprietor or LLC. Make sure if you own more than one type of business you fill out a separate schedule for each business. As a writer you will fill out schedule C using the business code 711510 for writing income. You may qualify to use the EZ version. See resource box for link to the forms.

2. 
   IRS TAXES SELF EMPLOYMENT

   SELF EMPLOYMENT INCOME: All self employment income is supposed to be reported and taxed. If your net income is over a few hundred dollars you need to revisit deductions as your income will be subject to Self Employment tax which is 15%. This can drive up your tax bill quite a bit. Net income is the income AFTER your expenses are deducted. Self Employment tax is also partially deductible. Do not give away money, capture your deductions.

3. 
   TAX deductions software

   DEDUCTIONS: Home based businesses are allowed many deductions. The internet and telephones are deductible. Don't overlook dyoepreciation your laptop (if 100% biz use), trade journals or subscriptions, domain names, home office room depreciation, printer costs, and travel if you travel for writing purposes.
   
   Other deductions are your car expenses (unless you claim mileage) parking and tolls. Unrecoverable business loans, office supplies, and tape recorder. Include on your deductions form your retirement plans such as SEP and 50% of entertainment of business related meetings. Interest on Business loan can be deductible.
   
   BUY and USE a mileage record book and use Software to track expenses. Some banks and credit cards will categorize expense for you. Use one credit card for all biz expenses.

4. 
   Walking on the edge

   NOT DEDUCTIBLE: These are common mistakes in claiming deductions. Others may tell you these are deductible, but they are not. Check IRS publications.
   Do not deduct club dues.
   Do not deduct earnings you have not received as a "loss"
   Do not deduct more than 50% of entertainment expenses. BUY and USE a record book logging date and who you meet with, the expense and the purpose of meetings or entertainment etc.

5. 
   INCOME Is Good

   HOBBY INCOME: Back to that hobby income issue. Three factors can determine if IRS considers your business a hobby. FIRST INCOME: If you have income 3 out of 5 year that is good. You are in business to make money, and all decisions should come from that purpose. Hobby income is usually decided by if you are making a profit within 5 years. As a writer there may be exceptions.

6. 
   Time can determine IRS standing

   Hobby Income: The amount of time you put into the activity can determine whether it is a hobby or not SO KEEP A CALENDAR. Buy and use software to keep your tax related appointments recorded.

7. 
   Not that kind of record - sillly!

   Hobby Income: Do you act in a business like manner? Separate Income and Expenses from personal income and expenses. Have a business checking account and credit or debit cards. Keep good records.

Tips & Warnings

• There is so much more that could be written. If in doubt talk to tax professional. When choosing tax professional check out difference between tax preparer and tax attorney.
• I have added a few sites I just found from search to save you time. I have not reviewed them thoroughly
• I am not tax expert you need to read up, check forms and publications, use tax software or a professional.

Resources

• Handling Writing
• Taxes and the Writer
• 2008 SCHEDULE C
• 2008 Schedule C instructions
• 2008 Schedule SE (self employment tax)
• 2008 Schedule SE instructions

[Alrady]

on 10/19/2009 thanks charlotte that means a lot coming from you!

[charlotteh]

on 10/12/2009 Great Article on taxes and highly recommend everyone saves as favorite. Working from home has it's advantages but what you outline here is great for newbies and experts. 5*s

[klnygaard]

on 8/8/2009 adding to my favs- excellent info

[karileighk]

on 7/9/2009 Thanks. This is excellent.

[cajunc]

on 7/7/2009 Good information here!

Linda
cajunC