So how do you get started? Your daily calendar and journal are going to take on a new role starting today. A few extra notes on your calendar and journal each day will capture deductible expenses and mileage that may otherwise slip through the cracks. Record your odometer reading in your journal. Record the date and purpose of each business-related trip (bank, post office, book signing, library, office supply, etc). You can use Google maps or other online systems to calculate the mileage to the various locations.
Your calendar of appointments will be a backup to validate required travel. Mileage logs require that the records be kept “contemporaneously” occurring in the same period of time. A daily journal will meet those requirements. Several of my clients increased their mileage deductions by 50 percent when adopting this method because the memory for small trips becomes blurred as time passes.
You can deduct business expenses on your income tax return. These expenses are the current operating costs of running your business. To be deductible, a business expense:
1. must be incurred in connection with your trade, business, or profession;
2. must be ordinary and necessary; and
3. must not be lavish or extravagant.
For example, you went to your favorite steakhouse for dinner alone, you treated yourself to drinks, the biggest steak you could eat, and after-dinner drinks. The total bill was $250. While this might be “reasonable” for a dinner for two or three people, it is not deductible for one person. From the receipt, the IRS could determine that the dinner had no business purpose, and therefore, the meal failed the directly related test. The receipt would have shown the number in the party, the location as local (not an away business trip), and lastly, the cost would have been considered lavish.
On the other hand, you just had a business dinner and you saved the receipt and credit card charge ticket; what now? In addition to the receipt, you need to be specific about the “Who” (who was there?), the “Why”(what was the business purpose of the meeting?), and the “Where” (where was the event?). Was it in an atmosphere conducive for business discussions? You might ask why you need to keep the receipt because the charge will appear on your monthly credit card statement. The IRS wants itemized receipts so they can ferret out personal items that are not discernible from the credit card statement.
You may be living in the electronic era with a minimal amount of paper documents; however, the IRS still wants to see “written” documentation and paper receipts. There is a thin line between satisfying the IRS’ requirement and not cluttering your life. Neat receipt scanner, cell phone photos, and other available programs can help you preserve deductible transactions without changing your entire lifestyle. Protecting your records should not be taken lightly. If you have selected electronic record keeping, be sure to backup up your data on a regular basis.
Does the IRS accept excuses for not having adequate records? The general answer is no, although there are a few acceptable excuses; however, it’s better to be safe than sorry. The IRS takes a hard-line view on business entertainment and it is up to you as the author to keep the appropriate records to support the deductions. Although the IRS does not require receipts if the cost of the entertainment is less than $75, they certainly will ask for substantiation.
What other deductions can authors take against sales revenues, speaking engagements, and royalties?
· Professional fees and dues including licenses, professional associations, union dues, and credentials.
· Continued education expenses for courses and material supplies, reference materials, and seminars.
· Books and textbooks purchased for research. Use caution on including every book you purchase as research. Apply the reasonable test and answer the question: business or pleasure?
· Computer, briefcase, and software.
· Printing, business cards, and clerical services. If you pay more than $600 for services to an individual, you are required to provide a 1099 to that vendor.
· Online services for Internet, data backup, cloud computing services, DVDs, films, and streaming videos for research. Some of these may be limited depending on the nature of your writing.
· Legal and professional services such as accountant, agent, business advisor, and attorney.
As an author, you are considered a “Cash Basis Taxpayer” unless you have elected to be treated otherwise. As a cash basis taxpayer you deduct expenses in the year in which you pay them; however, there are a few exceptions to the rule. If you purchase a computer and software at the end of the year and charge it on your credit card, as long as you have placed the computer “In Service” (turn the computer on and start using it) by December 31st, you may claim all the costs or a portion of the expense as depreciation. If you need a new computer as well as deductions for the year, this is a valid year-end planning strategy.
This article is not meant to be tax advice and should not replace the advice of your accountant who knows your individual tax situation. This article is intended to raise your awareness and provide tools to save you money and help you to be better prepared to validate your business deductions. Upcoming articles will cover topics on automobile deductions, home offices, and hobby losses.
If you would like a more extensive list of deductible expenses send me an email with subject “Writer’s Deductions.” _________________
|Photo by Byron Small|