You’re
sending out the last invoices of the year and cashing those last checks. Self-employed
writers need to be aware of tax regulations that might affect you. Self employment can be part time or full
time, it can be a partnership or as a sole proprietor, and it can be a second
household income or a first and only.
It has been
my own personal experience that a professional accountant who is well versed in
the most up to date tax laws usually pays for him/herself. But it is always a
good idea to be aware of your own tax rules and liabilities so you can be well
prepared.
First
question, is it 2012 income if you did the work in 2012 or only if you are paid
in 2012? According to my accountant (who uses the “cash method”), the money you
collect in 2012 is reported as 2012, anything else is reported when it is paid/collected.
Late payments may or may not be classed as bad debts; bad (business) debts
should already be counted as income to be deductible. Late payments are not bad
debts since you have a reasonable expectation of collecting… eventually.
Make sure
your records clearly show income and expenses AND include supporting documents.
Keep track of all your business expenses; business expenses are those that are
ordinary or necessary to conduct your business. The proof of burden if the IRS questions
your return is on you so make sure you keep those receipts as long as necessary
to back-up your claims. You MAY be able to deduct some otherwise personal costs
such as mortgage or rent, use of your car, phone or utilities depending on what
you actually use towards your business. There are specific rules that apply,
your accountant can help or the IRS puts out booklets on Home Office Deductions
and Business Use of Your Home.
If you incur expenses towards a major writing
project (such as a book) and do not expect to receive your payment or royalties
in the same year, you can deduct those expenses when you actually receive
payment for that project under the Uniform Capitalization Rule; your record
keeping and supporting documents have to be well kept to justify those expenses
so make sure you keep your receipts, agreements, checks and more. Make sure
that you show true intent to earn an income and be careful about how many years
you show business losses, a move many self-employed small business owners unfortunately
get to claim now and then.
There are
many helpful publications on the IRS website at www.irs.gov
Writing exercise: Take a piece of loose leaf paper and make 3
columns. In the 1st column list 5 to 10 professions, in the 2nd list
5 to 10 settings, and in the 3rd
a historical or current event. Using random combinations, 1 from each
column, write a 2 to 3 paragraph short story about each. Do this several times
with a different combination each time.
Writing prompt: List as many “things” that you have inherited
that you can think of – but they should not be tangible items (such as heirloom
candlesticks), they need to be habits, customs, spiritual beliefs, health,
color of your eyes, even likes and dislikes. Be specific. Choose any 3 items
and write 1 sentence how YOU would be different without those things.
