Death and Taxes–A Writer's Guide to Keeping More of What You Make
Two things we cannot avoid? Death and taxes. Death I cannot help you with. But taxes? Maybe I can. As a quintessential optimist, I would like to believe that almost every writer aspires to one day get paid for doing what they love. The bright side of that? You will get paid to write. The down side? So will Uncle Sam. How much he gets paid will be up to you. After almost ten years of writing for a living, I can honestly say that self-employment can be a blessing or a nightmare depending on how well you learn to handle the business side of your craft. Best to get in good habits as soon as you possibly can.
There are so many workshops and blogs dedicated to the fun stuff…the writing. The craft. Frankly, characterization sounds way more exciting than itemization any day. Yet, ignorance is costly. How many talented actors, musicians, artists and athletes ended up going from multi-millionaires to using a squeegee at a car wash because they failed to understand the business side of their business?
My last two blog postings have been geared to help writers understand that there are two sides to the entertainment business. The entertaining is fun, but the business? Let’s just say us artsy creative types often find it more than a little intimidating. In fact, most of us would rather get major dental work while being forced to listen to Paris Hilton’s CD set on repeat. A lot of us have a tough time with spreadsheets and business plans. We struggle to be organized and think that Excel takes all the sparkle out of life. But, alas, we do wish to be successful at our writing business. So if we must gut through the not-fun stuff, we might as well make it as painless as possible.
One bright side to being a writer is that it is shocking how many things are tax-deductable. Thus, it is a good idea to get into the habit of collecting receipts. And don’t wait until you are published or making decent money or any money for that matter. Do it now. Depending on tax laws, you can use several years of expenses (more on that later) once you do get to the point that itemizing makes sense. I am not an accountant and the tax laws change every year, but I have been self-employed for a very long time. Thus, the greatest advice I can offer is save everything. Now, that said, how do you keep it all organized? Yes, that $3000 computer, the writer’s conferences, and even your cable bill are all deductions…if you can find the receipts.
Back when I was in corporate sales, I had a nine-state territory and northern Mexico. That meant I was on the road almost 100% of the time. When you are on the road that much, you can quickly be up to your eyeballs in little slips of random papers. Everything went on the expense report, and I was almost always reimbursed exactly what I had spent. It was shocking, however, how much money my fellow salespeople basically threw away because they didn’t effectively organize receipts. Okay, I’ll confess. It was shocking how much money I threw away before I learned to effectively organize my receipts.
Since tax laws are changing continually, I advise saving everything you can, then let a professional accountant tell you what you can and cannot deduct. And then keep a record of all these receipts in case you get audited (the IRS tends be more apt to hassle self-employed people).
A simple way to keep up with all these little slips of paper? Ten easy steps.
- For ladies? Carry an envelope in your purse. Every receipt goes into the envelope. When it gets full, empty into a large manila envelope in your office area marked with the current month. Guys? When your wallet fills with receipts, just dump them in the big folder.
- It is a good idea to write a name on any receipts for meals you would like to deduct as business meals. Who were you at lunch with and what was the purpose? An extra step, but one that will make life easier later on.
- At the end of the month, it is time to sort. But before doing anything else, take a black ballpoint pen (NOT BLUE! AND NO HIGHLIGHTERS!) and underline the following information on every receipt: date, amount, place of purchase, type of purchase.
- Sort. I sorted chronologically into one pile.
- Get a big stack of cheap copy paper (legal size is good for this) and some Scotch tape.
- Start taping the receipts in chronological order down the left side of the paper, leaving room to write on the right side.
- Once everything is taped, go back to page one. January 1, March 1, whatever. Remember the stuff you underlined? Now WRITE it out to the side in clear bold letters in black ballpoint pen. Blue will not photocopy and highlighters can smear your original receipt and make it illegible.
Your information will look something like this:
May 1, 2010
May 3, 2010
Barnes & Noble
Research Materials for Article
May 4, 2010
Business lunch with Joe Schmoe to discuss Writer Workshop Agenda
8. Once all this information is noted, make two photocopies of your original documents. One for your accountant and another for back-up just in case.
9. Clip your originals together with a large alligator clip and then slide back into the large manila envelope you originally used to collect them. Make two more envelopes. One for back-up copies and one for your accountant.
10. File. I recommend that originals go in a fireproof safe. In the digital age, you may also wish to scan the pages into your computer and then save them on a flash drive or server.
Also remember, once you are self-employed, a portion of your utilities, cable bill, cell phone bill, Internet service, car payment, and even your mortgage can be possibly deducted. It is a good idea to photocopy these monthly bills and then file accordingly. The original bills can go in the folder with the original receipts. Copies in with the copies, and another set put together for your wonderful accountant. Keep these receipts for ten years ideally. Laws change, so I like to err of the safe side. You might keep only hard copy for the past five and digital for the five years prior to that. As I said earlier, tax laws are always changing. You might not make a dime from writing until three years from now, but the computer you bought at the 2009 After Christmas Sale might be a deduction in 2012.
Now when your accountant goes through your receipts, he or she will no longer be desperately trying to make up from down out of a shoebox of coffee-stained slips of paper. He can just scan through the pages and circle the items you can deduct or mark a big X through items that might make Uncle Sam take an unwanted interest in you. Since the information will be chronological and organized, you will find that your accountant will be able to help you keep a lot more of your hard-earned cash.
I recommend saving everything. Never hurts. That Jones of New York suit you bought to teach at a writing conference might not be a write-off, but then again? Maybe it is.
Collecting receipts in this manner offers a number of benefits. Since you will lose far fewer receipts, you will be able to possibly take many more deductions. But the biggest benefit? You can sort when you feel like it. If you toss all receipts into a monthly file, they are contained. No longer wandering in the bottom of purses or junk drawers. If you are super-disciplined, feel free to organize and file once a week or at the end of the month. But, if life explodes, or you naturally tend to procrastinate? No worries. You can just sit and organize three months at one sitting. Since the receipts are corralled by month, feel free to organize when it suits your life and schedule.
For more on the business side of the entertainment business, I recommend NY Times Best-Selling Author Bob Mayer’s Warrior Writer Workshops (firstname.lastname@example.org) which are designed to teach writers how to be commercial savvy.