Wednesday, August 26, 2015

The Business of Writing: Expenses #ASMSG #MFRWOrg #IAN1 #IARTG

Pre-decimal till, Museum of Liverpool
by Reptonix free Creative Commons
via Wikimedia Commons.
Disclaimer: I am not a lawyer, tax specialist, or professional accountant. I'm just an author with a decade and a half of experience running my writing business. 

I'm here to share some ideas about the types of expenses related to writing and how to manage them. For specific questions, please consult your lawyer, tax specialist, or accountant!

Yes, writing is a business, with expenses as well as income. And it's not too late—or too early—for you to start organizing those records for the Tax Man if you haven't already begun to do so.

Since I incorporated my computer-consulting practice two decades ago and my corporate lawyer gave me the green light to include my writing business, I have kept a series of Excel spreadsheets, one per year, each with separate "tabs" (worksheets) delineating the major expense categories.

With this information I can then classify the appropriate amounts in QuickBooks whenever I write a check against my corporate account to pay myself back for out-of-pocket expenses. It all gets delineated by category in my balance sheet, which comes in very handy for filing my corporate tax return each March.

The major expense categories I track related to writing include:
  • Advertising: paid mailing lists, print ads, web promotions (blog tours, tweet packages, web site design & maintenance, and so forth), booth fees at book fairs and conventions, and contest entry fees (because you're advertising your book to the judges).
  • Bank Charges: fees deducted from royalty payments from publishers who pay me via Paypal; currency conversion fees for foreign purchases of writing-related materials such as research books; ATM fees when the cash withdrawal is used for purchasing writing-related goods or services.
  • Gifts & Charity: the fair market value of books or other writing-related items donated as door prizes, given to museums, etc.
  • Dues & Subscriptions: amounts paid to writers' organizations; writing-related print and online subscriptions such as Writer's Digest and Publisher's Lunch.
  • Inventory: the cost (including shipping & taxes) of purchasing my books for resale, delineated by book title, edition type (print, audiobook, e-book), and if a print edition, whether it was purchased new or used. I only pay myself back for print edition purchases; the other editions are usually onetime buys to have the e-book or audiobook available on my Android device as "show and tell" at personal appearances.
  • Meals: the cost of business meals. Since this is a category that's often flagged for audit, I usually don't bother recording those expenses, but I keep the tab from year to year just in case.
  • Office Supplies: self-explanatory, but I do include software purchases in this category, such as my annual purchase of Turbotax for Business, any QuickBooks upgrades or add-ons, etc.
  • Outside Services: occasional payments made to service personnel such as translators, artists, book cover and layout designers, editor, book trailer designer, web hosting provider, computer repair technician, printer of promotional materials, and so forth.
  • Postage: again, self-explanatory, but I also include the annual fee to maintain a box at my local Post Office, since that is the address of record for most of my corporate mailings, and for fans of my writing.
  • Professional Services: annual payments made to professional service personnel such as my corporate lawyer. Back when I first started my company and employed a freelance accountant before I transitioned to keeping my own books, I recorded his fees here too.
  • Research: purchases of books and other materials in the course of researching my novels. This is not a traditional tax category but one I established because I didn't want to lump those purchases under Office Supplies.
  • Telephone: for the past two decades I've been recording half the monthly cost of my landline expense. This was the common wisdom for delineating business versus personal use when I started the practice, and for me it still makes sense because my DSL Internet service is bundled with my landline, and probably 90% of my online activity is directly related to writing and the promotion thereof. I don't bother to expense my cell phone usage because probably only 5% is writing related.
  • Travel: convention registration fees (sub-categorized as Education for such publishing-industry-only cons as RWA National), hotel room costs (including houskeeping tips but excluding meals and other incidental charges), and transportation (air and rail tickets, tolls, and automobile mileage).
    A side note on the mileage method for automobile deductions: I use mapping software to get the one-way distance, create separate lines in my spreadsheet for the "to" and "from" legs, and multiply it by the IRS Standard Business Mileage Deduction for the given tax year. For tax year 2015, the business mileage deduction is $0.575 per mile. The Standard Mileage Rates at a Glance page gives you the current rate as compared with the previous tax year. To obtain the value for any other tax year, visit http://www.irs.gov/, and search on "standard mileage deduction" and the year you want to look up.
Every item in my spreadsheet is backed up with either a paper or electronic receipt.

You might have noticed that I didn't mention expenses related to the "home business" deduction. The reason is that I don't ever bother with trying to claim it—even though I am situated to do so under current tax laws—because I have no desire to reduce the tax basis of my residence. The home business deduction amounts to a "get you now or get you later" type of situation as far as the IRS is concerned, and I choose the "get you now" option so that I don't complicate matters either for myself or my heirs later.

Once I have paid myself back for an out-of-pocket expense, I record the date paid in the appropriate place, which automatically updates the "amount remaining" fields on the category's worksheet and on the summary worksheet. That way I can see at a glance how much is yet to be repaid in which category.

This is of course just one way of organizing your expense records. If you use another system that works for you, I would love to hear about it!

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2 comments:

  1. Very useful post, Kim. I must check to make sure I haven't missed any of the expenses...

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    1. Thanks, Olga -- and thanks for taking time to stop by! :)

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