Unlike applying to a writers’ colony, everyone is automatically accepted. However, the IRS then calls in 1% of the applicants for an interview–also known as an audit–to decide who cuts the mustard. Writers who pass get to keep their deductions; the IRS brands the rest mere hobbyists.
Fortunately, advice for writers abounds in the Internal Revenue Code, the IRS’s regulations and the Tax Court’s case law. Heeding this advice will greatly increase your chances of writing off your expenses. What’s more, the guidelines resemble the tips your writing coach might give you.
Uncle Sam’s Writing Tips
* Write more. The more time you spend writing, the more serious you appear to the IRS, regardless of genre or content. Jack Nicholson’s character in The Shining, even though he only typed and retyped the same sentence day after day, would not have flunked this part of the audit.
* Don’t give up your day job. You can write evenings and weekends as a sideline; this is perfectly okay with the IRS, as long as you intend to make a profit from your writing. But how do you prove you’re in it for the money?
* Submit to paying markets. If you send poetry to magazines that only p in copies, you’re acting like a hobbyist. Don’t bother filing Schedule C, “Profit or Loss From Business.” Do you pay reading fees and enter contests that offer cash prizes? That’s more like it! You’re spending money to make money. Once you’ve got a fistful of clips, woo editors who actually write checks to their contributors.
If you’re a journalist, raise your sights from stingy local weeklies to trades and slicks. Though not written into the Code, Dr. Samuel Johnson’s dictum prevails in spirit: “No man but a blockhead ever wrote, except for money.”
* Avoid the passive. To make it as a writer, you have to hustle. Don’t let rejection get you down! Send that short story right out again. IRS auditors don’t care if you submit simultaneously; they just want to see that you’re active. The fact that you wrote an article three years ago will not impress them as much as it did your mom. (In fact, she’s probably getting impatient with you herself).
* Track your submissions. A chart will help you keep all your pieces out there all the time. It also makes for dandy evidence at an audit. Bring along copies of your cover letters and every rejection slip you’ve ever received, and the auditor will begin to see the light: This person is serious about writing. The payoff. Write-offs.
* Consult experts. The IRS frowns on entrepreneurs who launch a new venture without getting expert advice. So stock up on writing books, take those classes, attend those workshops, subscribe to Writer’s Digest. Boldly claim the cost on Schedule C, with the government’s blessing.
* Computer, typewriter or pen? Whatever tool of the trade you favor, you can deduct the cost as a legitimate business expense. For pricey purchases that have a useful life longer than one Year, add Form 4562, “Depreciation and Amortization,” to your tax return. Either write off the cost over a five-year period or, if you had enough earned income, deduct up to $17,500 worth of equipment in the year you “buy it. (Ribbons and refills go right on Schedule C as supplies,” whether you earned any income or not.
* Keep a journal. Just as you take note of fleeting inspirations for later use, jot down those evanescent expenses you run up. The information will be handy come April, when you’re working on the final draft of your tax return. Remember to pick up receipts at the post office and the stationer’s. Routinely log your auto mileage in a glove compartment notebook (you can claim 30[cts] a mile for work-related car trips in 1995). If you already rely on an appointment calendar, the record-keeping battle is half won.
Mind you, the IRS’s requirement for receipts isn’t absolute. It used to be that you didn’t have to keep a receipt if you were claiming an expenditure for business travel or entertainment of less than $25, as long as you jotted down the time, place and date of the expense, and the business purpose, and your business relationship with the people you fed or entertained. Starting Oct. 1, 1995, this limit rose to $75.
But think for a minute before opening up the window and tossing your receipts like confetti. The handy, thing about receipts is that they already have the amount, date, time and place on them, as well as the name of the restaurant. Isn’t it easier just to keep the receipt and scribble on it, “Lunch with Deep Throat–RMN knew” “Also be aware that you must keep receipts for lodging on business trips.
You still can’t deal with collecting and filing little pieces of paper? The IRS will allow you to use a per diem allowance for meals while you’re on a business trip. Depending on your destination, you can legally claim you spent from $26 to $38 a day for food when you traveled away from home overnight. (You can then deduct only 50% of this amount; the tax laws are convoluted and badly in need of editing.
* Set aside a place for writing. Your writing coach may have talked up the advantages of having a cubby where nothing can distract you from the page or the screen. The IRS feels the same way and will reward you for such devotion to your craft. This boon applies only when the home is your principal place of business.
If you have a net profit from writing and use one-fifth of your home regularly and exclusively for writing, you can deduct one-fifth of the utilities, insurance, repairs, cleaning and rent (or real-estate tax and mortgage interest) on Form 8829. Incidentally, when novelist Georges Simenon lived in Connecticut, he successfully wrote off half the expenses of his farmhouse. The percentage you can take will depend on how big your cubby is and how nimy bookcases are scattered around the rest of the house.
Note that you must have a net profit in order to take the office-in-home deduction in the current year. What’s more, you can’t create a loss by taking the entire home-office deduction, though you can reduce your net profit to zero. However, Part IV of Form 8829 allows you to carry forward any unused loss to the next tax year, and the next, and the next, until you finally hit the bestseller charts and auction off the movie rights. Hint: Keep those past-year rent checs in your tax file, so that you can haul them out at your audit in the year 2001.
* Take care of your health. Try to get out of the home office every once in a while, even if it’s only for a spin in the car. Unlike company employees, who cannot deduct their morning and evening commute, people with home offices can deduct every business trip of the day. As long as it doesn’t take you put of your way, no auditor is going to complain if you stop halfway between the library and the copy shop for a jog around the pond.
There’s a small break on the health insurance from too. If you pay for your own health insurance and you showed a net profit from writing in 1995, you can now deduct 3096 of the premiunis you paid on line 26 of Form 1040. This figure is up from 25% last year. However, the dollar amount you take off cannot exceed your net profit.
* Some day you’ll make it. If you’re serious, you’ll keep plugging away. While you’re at it, keep writing off your expenses. True, the IRS has a presumption that you must show a profit in three years out of five in order to take deductions on Schedule C. Note, however, that this is a rebuttable presumption.
If you can show at an audit that you’ve followed the IRS’s own tips for writers-devoting time to your craft, trying to sell your work, honing your skills and keeping good records–the auditor may throw in the towel. Consider hiring a knowledgeable advocate (a CPA or EA).
* To be a great artist you need not suffer. IRS auditors are somewhat suspicious of people who may actually enjoy their work. Don’t let that faze you. As a Tax Court judge once remarked, “Suffering has never been made a prerequisite to deductibility.” What’s more, your intention to make a profit need not even be reasonable, but merely genuine. Viewed in this light, Jack Nicholson’s demented author might have breezed through an audit.