It's Tax Time Again

Every year around this time, freelance writers cringe at the thought of filling out their tax forms. It needn’t be the anxiety-prone, stress-inducing time that some make it. In fact, if you’re organized throughout the year, it can be downright easy. But remember, the Internal Revenue Service, otherwise known as the IRS, puts the burden of proof squarely on you.

Although the IRS requires no specific accounting systems for businesses, the details it asks for do add up. You'll want to keep careful records of income, expenses, deductions—travel, entertainment, and business expenses in particular—as well as receipts for equipment purchased depreciation schedules, and miles traveled. The IRS requires that these records be accurate and accessible. So for this very reason, you need to move away from storing receipts in a shoebox to a more organizes approach.

Today, there are any number of computer programs that will help you with keeping accurate records. Whichever one you choose to use, be sure it allows you to enter expenses as you create them, recording amounts from receipts daily, weekly, or monthly. The sooner you do record them the better.  One program that’s particularly easy to use is Quickbooks Online. You can also install Quickbooks on your PC and use it there. There are also a number of cell phone apps that allow you to record your expenses. But make sure that the app allows you to synchronize with your computer and transfer the results to it, preferably to a spread sheet.

When can you toss out your  records, as far as the IRS is concerned? In general you can do this  three years after a given taxable year's due date for the tax return, or the date filed, whichever is later. These dates, however, are minimums. You should keep many records, such as cash books, depreciation schedules, general ledgers, financial journals, financial statements, and audit reports, longer. Plan on storing accounts payable and receivable records, canceled checks, payroll records, and invoice details for at least seven years. And don’t forget to keep copies of your tax returns.

You can deduct all of the obvious expenses involved with your writing business up to 100 percent of your gross earned income from writing, but no more than that. Obvious expenses include office supplies, equipment, postage, copying and printing costs, magazine subscriptions, book purchases, professional memberships, travel, business meals (50 percent), professional help, and so on. Keep receipts for all these items.

Expenses connected with your home office are also deductible, but the space must be used solely for your writing business, and you must be employed primarily as a writer. No other use of the same space is permissible. If you use one room of an eight-room house for your office, you’ll figure one-eighth of your mortgage or rent, plus one-eighth of your utility bills, etc. So you’ll need to keep receipts for all of these, too.

Automobile and mileage expenses—the portion used for business—are deductible as well. It pays to figure out your actual costs and compare them to the standard mileage deduction to see which way of calculating your expenses gives you the largest deduction. Generally, you’ll probably come out ahead with the standard mileage deduction which is more than generous. If you drive a lot for your business, keep a mileage log.

Be sure to record purchases of  office equipment and any related tools like software and cameras under capital expenditures. You’ll need to depreciate all of these items a certain amount each year of each item’s useful life which is usually five years. So you divide the total cost by five and take the resulting amount off as depreciation each year for five years.

One way to make sure you’ve kept all the right receipts in the right categories is to take the categories direct from Schedule C of your 1040 tax return. By doing this, you won’t forget any expenses, and they’ll also be sorted when it comes to filling in your tax forms. The more organized you are with this, the easier the whole process will be.

You may want to hire an accountant to prepare your tax return if you don’t feel up to it or if you’re too busy. However, only you can decide what to deduct—you have the final say. The fee you pay him or her is also deductible. Generally, the items you’ll deduct for your business will remain more or less the same each year. There are always a few changes but nothing you can’t sort out for yourself. Once you have everything in order, you can fill the forms in online and file electronically if you wish.