Monday, January 18, 2010

Financial Planning: Taxes

This month's celebration of what we're doing right continues with another top resolution: finances. Since writing is a form of self-employment, dealing with the financial end can seem complicated, even mystical.

Income tax
Photo by alancleaver

Finances don't have to induce a migraine headache nor are they rocket science. This week we'll look at them from a writer's perspective. Don't be scared! You already have the skills; after all, you balance a checkbook, file taxes, and manage your money.

Writers need to do two things: save receipts and keep records of their income. These two things will make tax time easier. On Friday, we'll look at a simple method of recording income, but for now, we're focusing on saving receipts.

I have a manila folder marked "2010 Writing Receipts." Complicated, huh? What goes into this folder? Receipts for the dues I pay to writing organizations, for reference books, conference fees and related expenses, magazines, my website, office supplies, and anything else legally appropriate to deduct from taxes. EHow's: How to Deduct Expenses Writing Income answers many questions about appropriate deductions.

Saving your receipts saves you money. Deduct expenses on your tax return to legally keep your hard-earned cash. Store the receipts with your tax return that way if you're audited, the receipts serve as proof. It's as easy as that.

Freelance writers and authors are considered independent contractors. You don't have an employer to withdraw taxes from your paycheck. Unfortunately, Social Security and Medicare taxes are your responsibility too. With no employer footing half the bill, you're responsible for the full amount. Another great eHow article: How to File Self-Employment Taxes details the steps to file. If you owe more than $1000.00 in SECA taxes, you will pay them on a quarterly basis. and you'll estimate how much you owe.

Check out "Estimated Taxes" through the IRS website for the nitty-gritty details. Be aware, depending on where you live, you may have to pay state and city quarterly taxes too. An Internet search or a call to your county office should provide the answers for you.

Another great resource is "If You are Self-Employed" at the Social Security Administration's website. Read through the links listed at the bottom of the article for the full scoop.

When filing your annual taxes, you will use a Schedule C. Fill in the appropriate six-digit code stating you're a sole proprietorship. Some localities require self-employed individuals to file for a sole proprietorship. Check with your state and county for information. Another interesting article on the topic is eHow's "How to File for Sole Proprietorship."

Filing for a sole proprietorship is not your only option. You can also incorporate. There are pros and cons to both, but most newly published writers will probably best be served by sticking to a sole proprietorship. As your career flourishes, you may want to have more legal protection or reduce the amount of taxes you're paying. Incorporating can legally accomplish both.

Don't feel you need to learn this all on your own, though. A CPA can guide you through the tax process and make suggestions based on your situation. Never be afraid to use a professional!

Join me on Wednesday when we'll discuss financial planning: estimating income.

24 comments:

  1. Great posts planned this week, Jill. Financial planning seems to be an area we don't give too much thought to as we begin our writing journeys, but it's such a necessary part of it.

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  2. I'm not as organized this year as i've been in the past. I hate this time of year. Well, just that one task ;)

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  3. I'll make sure to pass this on to my husband. The only thing I know to do with money, is spend it. And discussing it always gives me such a headache.

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  4. Oh wow! This is timely for me, Jill! Last year I did start all of my receipts. And I'm glad I did. I didn't actually know that I'd start earning, and didn't get my first check until late fall. So I'm especially glad I saved the receipts. Although, I know even without an income I could use the receipts. But am really needing them now!

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  5. Good morning!

    Joanne: Yes, it is. The more information we get early, the less headaches we'll have later, right?

    T.Anne: Uggh! I agree. Tax time is never fun!

    Angie: Ha! I know how you feel!

    Thanks so much for stopping by!

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  6. Jill, thanks for all the information and links. I've been wondering how I'd deal with all this stuff if I get a book deal. I've just been putting it off. Now I have a starting point!

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  7. Sigh. We received word last week that our accountant is retiring. Praise God that my husband will take care of this.

    Perhaps I will forward your blog address...
    Patti
    www.pattilacy.com/blog

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  8. Great practical post, Jill! I have to admit, I always look forward to tax time because we usually get money back. Thanks for all of the great links! God bless!

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  9. I have a file folder for tax receipts too. It sure helps at the end of the year to have it all in one place.

    And I'm very happy to have a savvy accountant to help me navigate tax waters.

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  10. I had a blog about how to organize taxes for writers last year and you can find it here:

    http://camarshall.blogspot.com/2009/03/writers-bookeeping-on-cheap.html

    It's a little late for this year, but might be able to help someone out for next year.

    I'll have to update it with the stuff you have listed here. Great post!

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  11. Jody: Smart! And it's amazing how many items I take for granted that I can deduct.

    Paul: A starting point--exactly!

    Patti: Ouch! I'm sure you'll find another great accountant.

    Maria: Nothing like a nice refund!

    Erica: With the laws constantly changing, I'd say a savvy accountant is a huge blessing!

    Cassandra: Howdy! Thanks for leaving your link--can't wait to check it out!

    Thanks so much for stopping by!

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  12. Greeat post! Yes, keep those receipts organized as you go so you don't have to face a mess in January!

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  13. This is a great reminder for anyone who may need to start saving receipts for 2010 and thinking about taxes too:) Thanks!

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  14. Thanks for this info! Good stuff.
    Blessings!

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  15. Great post, Jill! One of my favorite topics this time of year. :)

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  16. o.O

    Oh, my. This is so vital, and something I've really wanted to learn about. I think I shall definitely take this up with my person at H&R. >.<

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  17. Timely post! I'll have to check out the links. This'll be the first year I'm doing our taxes without a professional--yikes!

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  18. Texas Playwright Chick: Absolutely!

    Kara: It's hard to believe it's 2010 already. I feel like I just started filing 2009 receipts!

    Karen: You're welcome!

    Heather: I'll bet! You're a whiz at this stuff.

    Danyelle: Good plan!

    Georgiana: I've used TurboTax many times and it's simple. Good luck!

    Thanks so much for stopping by!

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  19. Great breakdown. Just having that manilla folder to throw everything in is key to keeping it all in one place to look at for tax time. It is amazing all of the things that can be written off. :O)

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  20. Sounds like great advice if you are actually making money by writing. I used to do the receipts forder option when I seriously sent things out. It is very helpful information for all of us to know, to be ahead of the game.

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  21. Diane: Love those deductions!

    The Rejection Queen: Welcome! Same to you!

    Nancy: Yes and writers can also deduct expenses if they haven't made money, but are seriously pursuing publication. There's are rules, of course, but it's nice.

    Thanks so much for stopping by!

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  22. This was a very good article. To most people thinking about taxes is a migraine and most people just don't want to do it. Taxpayers can save a lot more money if they did a few small things. Including some things in this article.

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  23. I've been keeping receipts all along but I'm sure by the time, if ever, I make any money with my writing, the majority of them will have long expired their use on the tax form. But, still, I keep filing them away.

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