Weekend Discussion: Tax Tips for Freelance Writers
Freelancers can be unpleasantly surprised at tax time. With some careful planning, you can reduce the bite to a nibble. Here’s what you need to know.
Taxes hit the self-employed especially hard for one reason: Social Security tax. Every US employee is obligated to pay it, regardless of age or income. If you work for someone else, Social Security withholding eats 7.5% of your money every payday. But the tax is actually 15% (15.3, but I’m stretching my math skills here already). Your employer pays the other half for you. If I earn $1,000 at my job, my employer withholds $75, adds $75 from its funds, and sends $150 to the IRS as social security tax.
Here’s what many don’t know: if you are self employed, you are responsible for the entire 15%. You see? The $75 hit from my paycheck has suddenly doubled—part of the pleasure of working for myself.
You can reduce that tax hit by learning about the deductions available to you as a self-employed worker. In a nutshell, any money you spend in order to find business, complete the work, and collect pay for it is deductible.
Here are some deductions for which most freelancers probably qualify:
- Mileage and transportation. Whenever you drive in connection with your freelance work, you can deduct a certain amount for every mile. Do you take a cab to deliver your manuscript? The fare is deductible.
- Advertising. Classified ads, web banners, and other advertising
- Subscriptions and memberships. Writer’s Market? Publisher’s Weekly? Yep. Deductible.
If at all possible, set aside a part of your residence for exclusive use as an office. “Exclusive” is a very important adjective. If your office also serves some other purpose, it doesn’t qualify for the home office deductions. If it is exclusively an office, however, you can deduct a portion of many of the expenses required to maintain your household. Part of the electric bill, heating bill, rent/mortgage, maintenance, and others can be deducted from your business income.
To learn about these and other deductions, you only need one form: the IRS Schedule C. Download it (pdf) now and take a look. Read through each line and see which deductions apply to you. And if you have questions about it, you can also download the instructions for the Schedule C at www.irs.gov–just enter “schedule c instructions” as your search term.
Start keeping good records today. I recommend a notebook or spreadsheet with each page dedicated to a deduction category. Each time you spend money on your business, record the date, amount, and purpose and keep the receipt. When it’s time to file your tax return next year, it will be easy to transfer the grand totals from your notebook to the Schedule C, which will then feed into the form 1040.
Don’t let the potential tax chunk get you down if you want to work for yourself. It can be a much smaller chunk if you just learn how the game is played.
Joe Staples is a technical and marketing writer and editor in Utah. He knows more about taxes and less about football than the average person should. His background is in literature, information technology, and taxes, and no, it’s not a happy marriage. He welcomes your
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Friday, May 11th, 2007 at 3:45 am under
Great article on taxes. However, a couple of cautions on the home office deduction:
1) Your office space can indeed only be used for business, but that needs to be more than just writing. It also needs to be used to meet with clients…on a regular basis.
2) If you own your home and claim the home office deduction, you’ll owe some extra taxes whenever you sell the house.
I’ve read several tax books that say the home office deduction is a major trigger for the IRS to audit, so never assume you can just stretch the truth a little. In my mind, claiming the home office deduction simply isn’t worth it in the long run.
June 28th, 2007 at 3:46 amGreat article! I’d also recommend to keep track of things you buy for your business, even if they are tiny expenses, like printer paper or notebooks. You’d be surprised how quickly the little stuff adds up at the end of the year.
June 28th, 2007 at 3:47 amGreat article. I tend to do things (like make purchases) and think “write-off” (which is also how I justify cool writer’s toys to my husband) making the purchase easier. Then I don’t write it down or save the receipt! A notebook with a pocket is probably best.
June 28th, 2007 at 3:47 amBe careful with the deductions, they’re audit magnets. There’s no better way to grab the IRS’ attention than to all of a sudden start deducting everything from magazine subscriptions to scotch tape.
I do deduct certain things, my Internet connection, for instance. I don’t go crazy with the itemizing though.
Here are a few tips for avoiding or surviving an audit, if anyone is interested.
June 28th, 2007 at 3:47 amPer my accountant, she has me pay a full 30% to the federal gov’t and then 5% to my state just to make sure I’ve overpaid rather than underpaid. If you underpay by even a little, penalties will be involved.
Home office deductions are tricky, so I don’t use them. I was told that only if the computer is strictly used for work and nothing else - no chatting with friends/family, no personal emails, no kids slipping on for a few minutes, no shopping, no reading news, etc. And the room you set aside cannot be used for anything else. In my case, I have a laptop that I use in my dining room, so I don’t qualify anyway.
June 28th, 2007 at 3:48 amCaution is certainly in order, and you shouldn’t try to claim deductions about which you are not certain. But there is no reason to not claim legitimate deductions. Deductions on a schedule C are only audit magnets if they are excessively large in relation to income.
A page at the IRS lists these qualifiers for the home office deduction:
“Exclusively and regularly as their principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of their business, or in connection with their trade or business where there is a separate structure not attached to the home; or
On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.”
I don’t read that as a requirement that you meet with clients in your home office. What do you think?
June 28th, 2007 at 3:48 amAlthough I have a separate office in my house, I don’t deduct part of my mortgage as an expense.
Why?
My accountant told me that because we own our house, if I deduct a part of it as a business expense, in essence we are landlords.
That means that on the personal side of our income tax, we’d have to claim the amount that I deducted from the business as rental income. It’s pretty much a wash …and it creates an awful lot of paperwork.
(Note that this may not apply to everyone. I’m not deemed ’self employed’ — I am my own S-Corp.)
June 28th, 2007 at 3:49 amI’m not sure how to email you directly, Deb, but wanted to let you know that a recent listing–writing about Disney, wasted a bit of my time this week. Quote was accepted, pay was offered, then an odd email stating problems in the accounting office there, then a request to confirm quote, which I did, then…nothing. A heads up to all if this is relisted.
Thanks for all the great blog!
June 28th, 2007 at 3:49 amJoe said…
“Exclusively and regularly as their principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of their business, or in connection with their trade or business where there is a separate structure not attached to the home; or
On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.”
Thanks for quoting that, Joe, but I don’t think a writer’s home office qualifies for the “or” part. A writer doesn’t have inventory; a writer’s office isn’t rental property; and a writer’s office isn’t a home daycare facility (and if it is, that’s a separate business and you have impressive powers of multitasking). Which means to me that the first part — the meet with clients part OR make the office a separate stucture not attached to the home — would have to be met. I don’t think most writers have a separate building on their property that they’re using for their office, so for the sake of this discussion I was assuming the home office in question is inside the house.
The way that I read the IRS explanation, if you are a writer and your “home office” is inside your house, you can only take the home office deduction if you use it ONLY for business — AND regularly meet with clients in that space.
The tax books and writing books I have read also interpret the law in this way, so I don’t believe I am reading something into it that isn’t there.
June 28th, 2007 at 3:49 amNicole, I deleted the post from Academic Experts as FWJ doesn’t support term paper mills.
June 28th, 2007 at 3:50 am[…] Tax Tips for Freelance Writers: This discussion covers self employment taxes, deductions, and more. […]
February 29th, 2008 at 8:39 pm