Don't Let Those Taxes Confuse You!

by bestselling author Jean C. Gordon.

You asked.... We answered! Earlier this summer folks wondered about taxes, and so I went to our go-to gal who's got her finger on the tax pulse... but talks CAREFULLY because situations differ! Jean C. Gordon is experienced on both sides of the aisle, as a financial consultant... and a published author! Perfect day to pick her brain and get our affairs in order!

I’m going to start by thanking Seekerville for inviting me to visit. Then,

I’m going to let you in on a secret. I like taxes. Not paying them, but planning for them and doing income-tax returns. I gladly do all my immediate family members’ returns every year gratis. But it’s October, not April, you may say. Why are you talking about taxes? Because the last few months of the year are a great time to review your tax situation to make sure you’ll be able to take advantage of all the tax opportunities available to you as a writer when you have to file your federal income-tax return next spring.

To help with your review, I’ve taken my professional financial planner cap off the closet shelf, where it’s been since I left my day job a year and a half ago to be a full-time author, and am sharing my “Romancing the IRS,” a presentation on taxes that I’ve given to numerous writers groups.

Is Your Writing a Business?

Before you can look at your business tax situation, you need to determine whether your writing is a business or a hobby. Business losses are deductible. Hobby losses are not. If the IRS determines your writing is a hobby, you can only deduct expenses up to the amount of income your “hobby” produces. That said your writing doesn’t necessarily have to produce a profit every year to be a business. One rule of thumb is that your business should have produced a profit in three out of the past five years.

However, whether or not an endeavor is a business is not simply a matter of numbers. Rather, the IRS uses a facts and circumstances approach, generally considering nine factors. No one factor is controlling, and other factors may be considered. Your tax review mission is to look at these facts and circumstances:

$        How you approach writing (for example, to you look at it as a means to earn money and takes steps to improve your writing)

$        Your writing expertise

$        Time and effort you put into writing

$        Success with similar activities (For me the fact that I was employed as a tax and financial writer was a plus.)

$        History of income or loss

$        Amount of profits

$        Expectations that assets will appreciate

$        Your financial status (Having other employment that “pays the bills” can be a minus if your writing isn’t making a profit.)

$        The pleasure or recreation involved (Not that you shouldn’t enjoy writing, but if all you do is attend  and deduct the costs of conferences in fun places, you may fall down on this one.)

What’s Deductible?

You’ve determined your writing is a business, so what can you deduct? You can deduct ordinary and necessary business expenses. The following are common (but necessarily all) business deductions you may be able to claim:

$        Professional fees and dues, including Romance Writers of America (national and chapter dues), American Christian Fiction Writers, Mystery Writers of America, Sisters in Crime, and other writers groups

$        Continuing education costs

—  College courses

—  Online courses

—  Materials and supplies

—  Photocopy expenses

—  Books for research (but don’t write off every fiction book you buy)

—  Conference/Seminar fees

—  Textbooks

$        Advertising expenses (including reader giveaways)

$        Telephone expenses (for your business)

$        Supplies

—  Business cards

—  Website development and hosting

—  Computer software and supplies

—  Internet connection/use charges

—  Postage and shipping

—  FAX supplies

—  Photocopy expenses

—  Stationery

—  Equipment repair

—  Gifts and greeting cards (to your editor/agent, for example)

—  DVDs, files and videos for research

—  Clerical help

$        Car travel expenses

—  Between jobs or locations

—  Publisher/agent meetings

—  To purchase supplies

—  Professional society meetings

—  Related parking fees and tolls

—  You can track and claim your actual expenses or claim 54 cents per mile (in 2016; reviewed annually)

$        Out-of-town travel expenses

—  Airfare (only yours, not family members who are traveling with you, unless they’re with you as your employee)

—  Car rental, taxi, bus, train

—  Parking and tolls

—  Lodging (Your room only; family members may stay in the room with you but you can’t deduct additional rooms for family member, unless they’re with you as your employee)

—  Meals (only yours, not family members who are traveling with you, unless they’re with you as your employee)

—  Tips

—  Phone calls

$        Equipment purchases

—  Cell phone (for your business)

—  Copier, calculator

—  Recorder

—  Computers and printers

—  Computer peripherals

—  Desk and other office furniture

Under the tax law, your costs of these types of equipment are generally depreciated over five or seven years, meaning you have to spread your deduction over several years. But you have an alternative. You can elect to use so-called Section 179 expensing. By using expensing ,you generally can claim the costs of up to $500,000 (in 2016) of new and used equipment you purchase and put into service by the end of the year on your 2016 tax return, rather than over time.

If you want to offset 2016 business income and potentially lower your tax bill, you might want to buy equipment you are thinking about buying early next year before year-end and use expensing. That way, you could deduct the full cost in 2016.

$        Self-employment taxes (more on this later)

$        Premiums for medical, dental, and qualified long-term care insurance for yourself, your, spouse, and your dependents

$        Retirement plan contributions (self-employed plans, other employer-provided plans, and individual retirement accounts)
If you want to reduce your taxes for 2016, consider increasing your deductible retirement plan contributions before year-end.

$        Home office expenses (based on the percentage of your home the office represents)

—  Deductible mortgage interest

—  Real estate taxes

—  Homeowners insurance

—  Utilities

—  Repairs and maintenance

—  Depreciation

Does My Writing Space Qualify as a Home Office?

The home office deduction is available for homeowners and renters and applies to all types of homes. The first requirement to claim the deduction should be easy to meet. You must show that you use your home as your principal place of business. Next, you must regularly use the part of your home you want to claim as your home office exclusively for conducting business.

For instance, if you use an extra room to run your business, you can take a home office deduction for that extra room. However, if that room is also your guest bedroom, the office part of the room must be distinctly separated from the bedroom part, and you can claim the deduction only for the office part. You also can deduct expenses for a separate freestanding structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business.

Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities. You also need to keep accurate records of all deductible home office expenses (listed above). Sound complicated? It is. However, the IRS offers a simpler way you can choose to figure your home office deduction.

Basically, you figure the square footage of the space dedicated to your business office (not to exceed 300 square feet) and multiply it by five dollars. Your deduction cannot exceed your gross income from the business use of your home less your other business expenses. With this method, you cannot deduction depreciation in the office space. You can deduct the home mortgage interest attributable to your office space in your personal deduction for home mortgage interest. You’re free to change the way you calculate your deduction from year to year.

As a Self-employed Person, What Taxes Do I Have To Pay?

Like everyone else, self-employed people have to pay federal income tax (and state income tax, if applicable) on their earned income. You also have to pay the so-called self-employment tax. Simply, this tax includes the combined amount your employer and you, as an employee, would pay on your income on your behalf for Social Security and Medicare. In 2016, you have to pay 12.4% Social Security tax on up to $118,500 of net writing income (basically, after business deductions), if you have no other earned income. You have to pay 2.9% Medicare tax on all of your earned income. (Individuals with earned income greater than $200,000 (single) and $250,000 (married-joint) pay an additional 0.9% Medicare tax.)

The $118,500 income limit on earned income subject to Social Security tax applies to your total earned income from writing and other employment. For example, if your wages are $78,000, and you have $40,700 in net earnings from writing, you don’t pay dual Social Security taxes on earnings more than $118,500. Your employer will withhold 7.65% in Social Security and Medicare taxes on your $78,000 in earnings. You must pay 15.3% percent in Social Security and Medicare taxes on your first $40,500 in self-employment earnings and 2.9 percent in Medicare tax on the remaining $200 in net earnings.

If you haven’t looked at your writing income for the year and considered your possible tax consequences, now is the time. Your professional tax advisor can help. Or, if you used one of the popular tax programs for your 2015 tax filing, it probably gave your average ordinary income-tax rate. Use that rate and the self-employment rates to get an idea of your 2016 tax liability for your writing income. Personally, I use TurboTax Tax Forecaster (free) and Quick Books Self-employed computer programs for a quarterly picture of my income and tax standing. I’m sure there are other programs and apps you might use.

To take care of your self-employment and income tax on your writing income, you may need to make estimated tax payments. If you have a day job, too, you have an alternative. You can have your (or your spouse’s) employer increase withholding on those wages to cover taxes on your self-employed writing income as well as taxes on your wage income. Similarly, if you’re an older writer, you can choose to adjust the withholding on your Social Security benefit payments and retirement plan withdrawals to cover taxes on your writing income.

Generally, taxpayers have to pay equal estimated tax payments, and the IRS can charge an underpayment penalty for any quarter your payment is short. But if you receive income unevenly during the year, as authors usually do, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments. Electronic Federal Tax Payment System is the easiest way for individuals and businesses, alike, to pay federal taxes. Tax payments are due:

$        January 15 (Sept. 1 to Dec. 31)

$        April 15 (Jan. 1 to March 31)

$        June 15 (April 1 to May 31)

$        Sept. 15 (June 1 to Aug. 31)

When the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that is not a Saturday, Sunday, or a holiday.

If you don’t pay enough tax throughout the year—either through withholding or by making estimated tax payments—you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

Now for my closing disclaimer. This blog is for informational purposes only. To the best of my knowledge, the information I’ve presented is correct. However, it should not be taken as tax or legal advice. Before taking action on any of the information I’ve presented, talk with your professional tax advisor.

Any questions? I’ll be around for most of the day to answer any general ones I can. And by asking (or otherwise commenting), you be entered in my giveaway of one print (US only) and one eBook copy of Mending the Motocross Champion, the first book in my new Team Macachek series.

For Amazon bestselling inspirational and sweet romance author Jean C. Gordon, writing is a natural extension of her love of reading. From that day in first grade when she realized t-h-e was the word “the,” she’s been reading everything she can put her hands on. She and her college-sweetheart husband tried the city life in Los Angeles, but quickly returned home to their native small-town Upstate New York, where she sets her books.

They share a 175-year-old farmhouse just south of Albany, NY, with their daughter and son-in-law, two grandchildren, and a menagerie of pets. Their son lives nearby. While Jean creates stories, her family grows organic fruits and vegetables and tends the livestock de jour.

Jean is currently celebrating last week’s release of Mending the Motocross Champion, finishing Holiday Escape, a Team Macachek novella, and working on a new series for Harlequin Love Inspired. Connect with Jean on Facebook, Facebook/JeanCGordon.author, as @JeanCGordon on Twitter, or on JeanCGordon.com

New Release Giveaway

Physical therapist Dana VanAlstyne’s dreams of a family were lost in the dust of a motocross racecourse. Although she’s filled her life with her work and church activities, it hasn’t filled the empty space inside her. Nor has it eased the heartache of being abandoned by a man who wasn’t ready for a wife and children. Now her dream is to open her own private practice. All she needs is the capital to make that happen.

Anton, “Mac,” Macachek may be the top professional motocross racer in the country but he still has one race that matters more to him: winning a championship at Unadilla Raceway and showing the hometown folks the bad boy did amount to something. But when a horrific accident sidelines those plans, he makes a deal with the woman he once loved with all his heart. A woman who abandoned him. If Dana will get him back in racing shape, he’ll fund her new practice. Then an even more dangerous risk is revealed. If Mac races again, he could die.

Does Dana have enough faith to risk her heart again? She loved Mac once, but feared he loved motocross racing more than he loved her. If she helps him mend his broken body, will it also mend her broken heart? Or will it all be lost again in the dust and danger of a motocross racetrack?

TEAM MACACHEK: Meet the strong women and fearless men of the motocross circuit.

Amazon, Nook, Kobo, and iBooks buy links: https://books2read.com/u/3neYV8

Ruthy here! We've got birthday cakes today! Yes, we have banana split cake, banana cake, spread with pineapple and strawberry fillings, layered with fresh whipped cream and drizzled chocolate glace..... And for those who aren't into fillings, we've got Angel Food cake slices, sweet and simple! Stop in, let us serve you a cuppa and some cake.... and some financial conversation!!!