This month's biz post is about tracking writing-related expenses during the year and why you should make it your business to get your receipts, expenditures and other financial ducks in a row and keep them that way.
First, the why: Most writers are paid as self-employed independent contractors by publishers. This means the publisher does not take any taxes out of the writer's check. Nor do agents if the publisher pays them whatever is owed to the writer. Filing taxes is therefore different for us than most folks, and most of us have to pay quarterly estimated taxes as well as deal with the final end-of-the-year stuff. It really pays to be meticulous about expenses and record-keeping because we need every deduction we can get.
Now, the how: most writers come up with some sort of ledger or accounting system on their own, but the one I've found that seems easiest for everyone regardless of their accounting experience is the twelve-monthly envelope/ledger notebook method. Take a 3-ring notebook and fill it with twelve standard blank ledger pages. You can make columns for the type of expenses you usually incur (office supplies, internet service, postage, etc.) or keep a chronological accounting and note the expense type in the margin (I prefer the former.) To the back of each page, staple an open 8" X 10" envelope.
During the month, record your expenses and put your receipts in the envelope on the back of the ledger page. Some people prefer to put the receipts in the envelope during the month and then record them all at once at the end of the month. Do whatever works best for you, but at the end of the month you should add up your expenses and note your totals. If you'd rather let the computer do the math, or your expenses and income get complicated, you can set up your ledger as a spreadsheet and print out a ledger page each month.
Some tricks I've learned over the years:
1. Keep one credit card reserved for writing-related expenses only; the monthly statement will help you double-check your record-keeping.
2. If you have a lot of business-related phone use, consider setting up a separate phone line for business calls, internet service, etc.
3. Print out hard copies of all online transactions with order numbers in the event you don't get a receipt when they arrive (which sometimes happens with business materials or supplies ordered from the internet.)
4. Print out hard copies of all online business-related payments using services like PayPal.
5. With any receipts for unusual and/or large expenses, keep good notes explaining what they were for. Make sure these are deductions the IRS permits you to take, too, because if you get audited, this is where they get you with back taxes.
Don't guess at what your deductions should be or take the advice of a writer friend; always talk directly to the IRS about what expenses you can or cannot deduct. It's also good to visit the IRS web site every year to read up on the tax changes and/or one-time deals such as the new telephone excise tax refund for 2006.
Tracking expenses and record-keeping is like going to the dentist, the more often you do it, the less you tend to dread it. It's nice to be prepared for April 15th instead of scrambling for a week trying to reconstruct an entire year of expenses. Set up a system that works for you, and give yourself a little peace of mind.
D. Larry Crumbley's article Tax Aspects of Authors/Writers/Screenwriters
Tara K. Harper's workshop Taxes and Finances for Writers
Cyn Mason's article Taxes for Writers