Writers work in all different genres and write for a variety of media outlets. Some of us are business writers, others create romance novels and many write articles for magazines or copy for web sites. Putting words into print is our profession, but dealing with the financial aspects of our writing business can be challenging.
As an accountant, author and freelance writer, I can help. My newest title, Bookkeeping Basics for Freelance Writers, addresses issues writers face daily such as how to deduct travel expenses, differentiate between personal and business property and claim home office deductions.
Bookkeeping is an essential part of the business of writing, especially identifying and tracking expenses. Business expenses are considered an operating cost. The more legitimate business expenses that we can document, the lower our tax payments will be.
The Internal Revenue Service (IRS) requires that our writing expenses be ordinary and necessary in order for them to be acceptable. An ordinary expense is defined as common and accepted in our profession. A necessary expense means we need to spend this money in order to operate the business. The expenses must not be considered extravagant. They must be an essential part of doing business as a writer. It is important to differentiate between personal expenses and business expenses.
Writers are able to realize some unique deductions which may be considered personal for most other taxpayers. For example, a book on the history of California used for researching my fiction manuscript based in that state could be deductible as a writer. Other potentially deductible expenses include tickets to a ballet used to build the character of a ballerina I am writing about and an instructional DVD used to improve my public speaking skills. Most writers will call these expenses research or professional development. We need to be able to justify each expense if audited, so be sure it is legitimate and has the supporting documents to back up the claim.
To justify expenses, it is important to establish a system of recordkeeping that works for you. Some things need to be recorded daily, while others can be done weekly or monthly. It is imperative that you get into the habit of saving and recording everything related to your writing business. All invoices, receipts, credit card slips and bank statements are essential documentation that should be kept.
Some people find it helpful to create a system for their financial transactions using envelopes and lined paper. Transactions can be recorded on sheets of 8 ½” by 11” paper attached to the front of a large clasp envelope with supporting documentation stored inside. This system works well for many writers because it is simple to set up and only requires the purchase of paper and envelopes. However, one disadvantage of this system is that it’s hard to see at a glance how much you have spent on supplies during the year or how much you have paid for your business phone line.
If you prefer computerized bookkeeping, these transactions could be recorded on a spreadsheet and receipts could still be kept in a clasp envelope. Microsoft Excel® provides an easy-to-use program which can help organize your records. One benefit of tracking this information with a computer spreadsheet is its ability to compute. Once you learn the program, you will be able to format columns to add a range of numbers. This eliminates the chance of addition errors haunting you during an audit. Unfortunately, spreadsheets do not offer much room for detail and are not able to generate financial statements.
If you would like to go a step further, QuickBooks® is a user-friendly accounting program which generates financial statements and budgets using the data you input. Again, entering the data allows for error free calculations and, as a bonus, custom reports compile the information so you can easily determine how much was spent on shipping manuscripts during the year, for example. Trial versions of accounting software can be found online, but the cost to purchase and the time spent learning it could be a disadvantage to some writers. Receipts would still have to be kept to document your deduction.
The choice is yours. Any system that works for you is acceptable to the IRS, as long as the pertinent information is retained. Learning what to record as writing expenses as well as how to properly document each transaction is important to the success of your writing business.
Please visit my web site for more information: Bookkeeping for Writers .
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