Taxes for Freelancers
What can you deduct?
Business deductions can reduce the profit you declare on Schedule C and Form 1040. That's important, since writers and other freelancers pay 50% more in "self-employment tax" than wage-earning or salaried employees pay in Social Security taxes. (The disparity exists because freelancers don't have employers kicking in Social Security contributions on their behalf.)
What qualifies as a legitimate business deduction? That depends on your conscience, your common sense, and whether your name gets drawn in the local IRS office's game of Audit Bingo.
Supplies and postage aren't likely to be questioned, within reason. The IRS knows that a writer needs to buy paper and mail submissions. Writing software (such as a screenwriting program), dictionaries, style manuals, and dues in writers' organizations are probably safe. Car mileage for trips to the library is probably okay, too, unless your IRS-agent neighbor sees you checking out Thinner Thighs in Thirty Days after your weekly perusal of Writer's Market and Literary Market Place.
Research expenses can be trickier. If you're writing a novel about the French Revolution, a dozen books on the era probably won't be questioned--but a two-week trip to Paris (with a side trip to Monte Carlo) may not survive IRS scrutiny if you're audited.
Computer and general software expenses are another iffy area. For a home computer, the IRS requires you to pro-rate expenses between business (deductible) and personal (non-deductible) use. So, if you take a 100% deduction, be prepared to erase Quake and your kids' homework files when the IRS auditor shows up.
Deductions for the use of your home are easiest to justify when you have a room set aside as an office. Such deductions can include percentages of mortgage expenses, real-estate taxes, utilities, etc., so they're worth pursuing if you qualify.
Depreciation is no longer as important as it once was, since the tax laws now let writers (and other businesses) write off significant amounts for computers and other equipment in the first year. However, depreciation may be important if you've bought a car or other vehicle for business use.
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