It’s tax season again, which means loads of published writers out there are cursing their lack of record-keeping and vowing to do better next year. Fortunately, early March is usually not so late in the year that the very idea of going back over all the business receipts is an overwhelming task (for most writers, anyway). Especially since if you’re in this position, you’re probably facing an entire year’s worth of stuff from last year to sort and categorize, so what’s another two months?
The basic system is actually pretty simple: you find Schedule C (or whatever its equivalent is for your country, if you aren’t in the U.S.), mark all the line-items that you’re going to have writing expenses or income in, sort all your writing income and expenses into those categories, and add them up. Then you enter those numbers on the tax schedule and move on to filling out the rest of your forms.
The two questions that exercise most writers are 1) Which line-items are relevant? And 2) How the heck do I keep track of them all during the year?
#1 depends to some extent on what point in your career you’re at and on how you choose to run your writing business. If you’re filling out this form at all, it’s probably because you had some writing income; what isn’t always clear is that that “Gross receipts or sales” line is where ALL your writing-related income goes – advances, royalties, speaking fees, money from copies of your books that you sold to your neighbors, Amazon associate payments, etc.
The expenses, though, are where it can really get tricky. They’ll vary depending on how you handle your business. If, for instance, you rent an office for your writing, you will have entries under Utilities and either Rent or Mortgage; if you write in your living room or on your laptop at the local Starbucks, you won’t have those items (but you may be able to deduct your coffee on those days under “meals and entertainment”). If you have an agent, you’ll have an entry under Commissions; if not, not. If you have an accountant do your taxes, you’ll have something under “Legal and Professional Fees,” if not, not. Pretty much everybody will have something under “Office expense” and “Supplies,” even if it’s just the occasional notepad and pen. If you’ve been doing this for a while, look at your last year’s tax forms and see which lines you put entries in then.
So you look at Schedule C and make your list of which areas you expect expenses in. Mine includes Advertising, Car and Truck, Commissions and Fees, Office Expenses, Office supplies, Travel-Meals-Entertainment, and the home office deduction. Then you decide what kind of system suits you and your lifestyle best.
For beginners and many part-time writers, a manual system will be all they need. For this, you start with a stack of regular, letter-sized envelopes. You label each one with one of the categories, and then as you spend money on that during the year, you put the receipt (or a note, if it was paid in cash or direct-deposited) into the envelope. You can do this however works best for you: every day when you come in, every Friday, once a month as part of your bill-paying day. If you let it go for more than a month, it gets to feeling burdensome and you tend to slack off and next thing you know, it’s early March and you have a stack of empty envelopes and a bunch of unsorted receipts.
The manual method saw me through the first eight years or so of my writing career. As I got busier and had more expenses, I took to writing the amount of each receipt on the outside of the envelope when I filed it, so that I had an already-written column of numbers that I could total up easily, but at the beginning, there weren’t enough of them to make it necessary. If I were still doing it this way, I’d get one of those letter-racks and set it on the kitchen counter, so I could empty my pockets and purse straight into the envelopes the minute I hit the house every day.
The second possibility is what I call the semi-manual method. This is similar to the manual method, except that instead of sorting everything into envelopes, you set up a spreadsheet in Excel with columns for each category, and you put in each receipt as it arrives, entering the amount in the appropriate column. Then you throw the receipt into a file folder and forget about it. At the end of the year, Excel adds them all up for you. I did this for a couple of years with varying degrees of success. The success got more frequent when I started carrying around a PDA so I could make the entry right away as I spent things (these days, I’d use a smartphone).
Then came the Internet and online banking, and keeping track became ever so much simpler. These days, Quicken will download all your check and credit card transactions straight from the bank (so no data entry, yay!). Once you have matched your list of tax categories to Quicken’s tags (yes, they have a list of tax-categories pre-set, so you can use those if you want, but I prefer mine), all you have to do is review the entries every so often to make sure everything got put into the right category. I’ve heard from some writers who use Quickbooks, but that’s really overkill unless you’re doing something like running your own sales table at conventions.
Some folks don’t understand why they should bother with anything more than a shoebox to throw receipts in. If you’re one of those folks who really likes that panicked scramble on April 15 (and who doesn’t mind maybe missing a few deductions. I prefer the gradual approach (plus I was raised to think that paying Uncle Sam one dime more or less than he was entitled to was a crime worthy of life imprisonment, and you can’t do that if you aren’t really careful.
I, for instance, eat out a lot. When I have dinner with Lois at Pizza Lucci and we talk books and publishing the whole time, the charge gets tagged as tax-deductible “Meals and Entertainment.” When I have dinner with my sister and we talk about Dad’s plans to go to Tanzania and whether one of us should really go with him, the charge goes in non-deductible “Eating Out.” Just to make sure I keep them straight, I sign the charge slip at the restaurant, then flip my copy over and write “Dinner w/Lois – Ch. 3 problem” on the back for extra documentation.
And this is why you really, really want to track this stuff regularly throughout the year – I doubt that many people remember, come March 2013, whether that dinner a year earlier was the one with the writers where they heard about that anthology they submitted a story to (clearly a writing expense), or whether it was the one with their next-door neighbor where they talked about taking the kids to the Winter Carnival together.
If you are at all tech-literate, I’d recommend using Quicken, simply because it significantly lowers the possibility of data entry errors. If you don’t have very much in the way of writing income/expense yet, and you find that Quicken is way more than you need for your other personal financial tracking, go with the manual or semi-manual system, whichever suits your temperament.
Or you could just keep a shoebox…but really, even having a token system that you only manage to keep up to date for the first three or four months of the year before reverting to the shoebox will make tax time easier.