I have come down with yet another virus. UGH! So since Tax Day is rapidly approaching, I’m reposting an interview with a tax man that I did this time last year. If you’re wondering what you can and cannot deduct when filing your Schedule C (for people writing and editing freelance), this should help:
Every year when it’s time to do my taxes, I pull out my bag of receipts (groan) and open an new Excel spreadsheet (double groan). First I sort all my receipts according to categories: dining, office expenses, supplies, advertising, etc., and then I list those categories in my spreadsheet and start punching in the numbers. It’s not a fun time of year, and many of you may be going through this right now.
For those of you working as freelance writers, editors, web designers, etc., tax practitioner Andrew Stern in San Francisco has graciously offered to answer (by e-mail) some of the questions that plague me each time I sit down to do my taxes. His answers are brief, but extremely helpful:
Writerland: As a freelance writer/editor, can I deduct my cell phone bill?
Stern: It’s problematic as it is very hard to determine what % is for business, but everybody does.
Writerland: Do I have to keep a log to show exactly which calls are for which expenses?
Stern: Everyone estimates, but best is to have two phone lines, one business, one personal.
Writerland: Can I deduct home office rent?
Stern: Absolutely yes—according to total living space square footage and business use square footage or number of total rooms and business rooms. (Writerland note: You deduct the percentage of your rent that is equal to the percentage of your square footage used for business.)
Writerland: Food/drinks I buy while I’m writing at Starbucks?
Stern: No, food/meals only deductible when conducting business meetings.
Writerland: Dining bills? What if I buy my lunch and eat it in my office?
Stern: No, see above, and anything that is deductible you must have verification.
Writerland: What kind of verification?
Stern: Receipt, logbook entry showing who was there, who they are, what was discussed.
Writerland: Is a meeting between two writers to discuss each other’s work (like a writer’s group meeting) considered a business meeting?
Stern: No, not ordinary and necessary; two writers could talk anytime. Best reason for a business meeting—pursuit of revenue—clients, potential clients, referrals, potential referrals.
Writerland: Clothing purchased for work?
Stern: Absolutely not, clothing is deductible only if it CANNOT be worn anywhere else, i.e. uniforms.
Writerland: Medical expenses?
Stern: Medical expenses are deductible only to the extent that they EXCEED 7.5% of your adjusted gross income (bottom number first page Form 1040) and if you can itemize your deductions on Schedule A, unless you are self-employed and have a health savings account, then you can deduct up to 43K per year by using the HSA as a conduit.
Writerland: Are there any limits on business gifts? (Wine, books, etc.)
Stern: Yes, one can gift $25 per person per year for business.
Writerland: Is parking deductible? If I have to pay for a garage to park near the office I rent to write, is that deductible?
Stern: Commuting expenses are not deductible, including parking.
Writerland: Are transportation/parking expenses to interview someone deductible?
Writerland: What is the minimum I need to earn as a freelance writer before I should itemize my expenses?
Stern: No minimum, when you are in business you report income and deduct all expenses that are “ordinary and necessary” to your profession.
Writerland: What if I have income from various sources? Say I write articles and sell knit hats. Can I deduct my writing expenses from my knit hat income?
Stern: Indirectly yes, because your tax return eventually is one big pot, but directly no, as you have to separate business activities, which cannot be combined together.
Writerland: What if my expenses are for writing a book I haven’t sold yet? How/when can I deduct those expenses?
Stern: You are supposed to capitalize these expenses as a production cost, then they are deductible over a 3-year life by electing the safe harbor, 50% year 1, 25% years 2 & 3.
Writerland: Do all freelance writers need to pay quarterly taxes?
Stern: If they have profits, yes, otherwise they will be charged an underpayment penalty.
Writerland: When should a writer form an S-corp rather than filing a Schedule C?
Stern: When their profits (not gross) consistently exceed $150K to $200K, otherwise being incorporated costs more than it saves.
Writerland: What records or receipts do writers forget to keep track of?
Stern: This is not exclusive territory for writers, all taxpayers have problems with record-keeping.
Writerland: What can writers do ahead of time in order to prepare to do next year’s taxes?
Stern: Track your entire financial life using a personal finance program like Quicken, use bank account or charge cards to pay for everything, get receipts for everything.
Writerland: Is there a book, website, or tax software program you would recommend for writers to prepare for tax time?
Stern: Quicken, but no book, it hasn’t been written. I want to write a book for self-employed artists. Who wants to be my ghost writer?
Writerland: Can I do my taxes on my own using tax software like TurboTax or TaxCut, or should I hire a CPA?
Stern: If self-employed, you are always better hiring an tax pro, but that is not necessarily a CPA. We are tax practitioners, not CPAs.
Writerland: How much does a tax pro typically charge for a freelance writer’s taxes?
Stern: $300 to $600.
Andrew Stern’s contact information is below if anyone is looking for a tax professional.
Andrew Stern/Stern & Associates
4630 Geary Blvd Ste 303
San Francisco CA 94118