As you can probably tell, we’re still having difficulties with the web site, off and on. Also, for anyone who still has my old email address, pcw@visi.com has permanently stopped working; the only one that works now is the one on the main web page, pcwrede@pcwrede.com. Thanks for your patience.
Last Friday was estimated taxes day, and I got a little flurry of emails from people asking worried questions about record-keeping and tax stuff and whatnot. So I thought I’d devote today’s post to that sort of practical stuff.
The very first thing you have to understand about tax record-keeping for writers, expenses in particular, is that it is not rocket science. The hardest thing about it is that it is tedious.
Let me repeat that: this isn’t hard or complicated. It’s just boring. You don’t need a class in accounting or double-entry bookkeeping. You can do everything you need with a pencil, some ordinary envelopes, and maybe a notebook. If you want to get complicated and computery, you can use a spreadsheet or a personal finance program like Quicken. If you are planning on self-publishing and having lots of hard-copy inventory in your basement, you might need something more, but for the vast majority of writers (including most of those who e-publish), one of the above methods will be plenty.
This is particularly true at the start of your career, when you don’t actually have a whole lot to keep track of. I strongly recommend starting with something simple at this point, and that means whatever you find simple. If the thought of Quicken sends you into a tizzy, go with envelopes and a pencil. You can upgrade to something more complex if and when your needs become more complex.
Actually, a lot of writers go into a tizzy at the mere thought of taxes and record-keeping. They’re so worried about Doing It Wrong that they put off doing it at all, and end up on April 14-15 scrambling through faded receipts, illegible checkbook entries, and incomprehensible credit card statements (who was Cordellia Punstrom and why did I pay her $132.13 on my Visa last May?), trying to make some sense of it all.
Once again, this shouldn’t be scary. It’s not hard, it’s just boring and tedious.
The second thing you need to think about is what you are keeping records for. If you are willing to pay taxes on 100% of whatever money you receive for your writing, the only records you need are the ones that keep track of payments. You’ll be paying more taxes than you need to, but for some people, it’s worth the reduction in hassle.
Most of us, however, want to keep every dime we possibly can, even if a dime won’t even cover postage on a letter these days. That means keeping track of the writing-related expenses that you can put on your taxes, as well as the payments you receive.
There are 21 expense lines on tax Schedule C, which is the one U.S. taxpayers will have to fill out. Many of them are irrelevant to most writers – depletion, for instance, or pension and profit-sharing plans, or employee benefits. (If you are doing well enough at your writing to have employees and set up benefits and pension plans, you are doing well enough to be going over all this stuff with a Certified Public Accountant who can give you advice and help that’s tailored to your specific circumstances.)
For the vast majority of beginners, what you most likely need to keep track of are:
Line 9 – Car and truck expenses
*Line 10 – Commissions and fees (your agent)
*Line 16a – Mortgage interest
*Line 17 – Legal and professional services (i.e., your accountant and/or lawyer)
Line 18 – Office expenses
Line 21 – Repairs and maintenance (if your computer breaks)
Line 24 a – Travel
Line 24 b – Meals and entertainment
*Line 25 – Utilities
Line 27a – Other (if you have expenses that don’t fit the above categories)
The starred lines don’t really require tracking; either they only happen once or twice in the whole year (like the accountant), or they send you a summary of your expenses for the year as part of the last bill (agent, most utilities, mortgage). And if you aren’t taking the home office deduction, you don’t need the mortgage interest or most of the utilities.
That leaves six categories that might require tracking. So you take five envelopes and label them “Office” “Repairs” “Travel” “Meals & Entertainment” and “Other.” You leave them on a table by the back door. Whenever you come in, you take any receipts for anything that fits one of those categories, stick it in the appropriate envelope, and write on the back of the envelope the date and amount (because it’s a lot easier to read and quickly add a column of figures than go through a stack of receipts, even if they are already sorted).
“Car” is a special category that requires you to keep a small notebook in the car. In this, you write down your beginning-of-year mileage, end-of-year mileage, and the mileage to any writing-related things you do during the year (which can be meeting your agent at the airport or driving to a convention or writing class).
At the end of the year, you add everything up and hand them to your accountant (or fill the totals in on the appropriate line, if you are brave enough to try it yourself – though if you are taking a home office deduction, I strongly recommend finding an accountant).
If you’re using Quicken, you still may want to use the envelopes to keep track of cash expenses, but you can download your credit card and check entries from most banks. You still have to go through and put them into the right categories for the lines they belong to, which is easiest if you do it every couple of weeks.
And that is all. Really. It isn’t hard, just boring.
So very true.
Me, I have spreadsheets, not least because I like playing with spreadsheets. Really, it’s not all that hard to set up a formula that says, “Is this expense flagged as ‘office’? If yes, add it up. If no, leave it for the next formula.” Then it’s just a matter of plugging in the expenses as I have them, and copying the totals to the tax forms at the end of the year. There’s doubtless more sophisticated ways to do it, but this works for me. (The hardest part was making myself sit down and fine-tune the spreadsheets on April 16, while I still remembered the things that could have gone smoother. After several years, that part’s mostly gone away.)
Really, though, if you can handle all the things you have to do to have a writing income, you can handle the record-keeping!